Saskatchewan ponders business tax relief

Worth A Look, Taxation, Frontier Centre

CALGARY – Saskatchewan’s NDP government is expected to make deep cuts to its corporate taxes to keep up with its business-friendly Western Canadian neighbours.

The province’s budget, due in late March or early April, is expected to implement at least some of the sweeping recommendations of a commission led by Jack Vicq that found “profits are being exported and invested elsewhere” because of Saskatchewan’s business taxes, the highest in the country.

The report, published in November, urged reduction to 12% from 17% of the corporate income tax rate, and elimination of the corporate capital tax, set at 0.6% of paid-up capital allocated to the province.

Andrew Thomson, appointed this month as Saskatchewan’s Finance Minister, said the report provides a positive road map.

“It’s too early in the budget cycle to say much about what is going to be in the budget,” he said in an interview from Regina.

“I think the recommendations provide a fairly solid framework,” Mr. Thomson said. “The question is how quickly we can move with them and how affordable they are in the long run.”

Saskatchewan sharply lags its tax-busting neighbours. Alberta, benefiting from ballooning oil and gas revenue, has slashed its business taxes to the lowest level in the country and has promised to do more.

British Columbia started reducing its business taxes in 2001 with the election of Gordon Campbell as premier. This month, the government of the Northwest Territories, worried about an exodus of businesses to Alberta, also reduced its corporate taxes.

“Everybody is recognizing that you are going to have to stay in step with Alberta and we are no different” NWT industry minister Brendan Bell said at the time. “Alberta leads the country and leads the way. Those around them are starting to feel the repercussions of that.”

Jason Clemens, director of fiscal studies at the Vancouver-based Fraser Institute, said Saskatchewan’s budget promises to be one of the most important for the province in a quarter century.

The province is certain to move ahead with significant business tax relief, although timelines and aggressiveness are still in question, he said.

“I think you are going to see an immediate response in Saskatchewan in terms of business development,” Mr. Clemens said.

“And now you have an alliance of three Western provinces who are going to be pursuing similar policies when it comes to tax. Hopefully, that will then create some pressure on Manitoba to expedite what they are doing, and hopefully some sanity will come to Ontario on tax policy.”

Mr. Clemens said Saskatchewan’s push is enabled by strong oil and gas revenue, which has resulted in a budget surplus. The province is also encouraged by the results of British Columbia’s tax reforms.

Yesterday, the Vancouver Board of Trade recommended further tax reductions, while noting the economic and social strategies implemented since 2001 have helped revitalize the economy.

Mr. Thomson said Saskatchewan doesn’t just want to compete with Alberta, he said. Alberta’s strong economy is a magnet of people — particularly the young — from Saskatchewan.

“There is always a lot of talk about Alberta. But we understand that we aren’t Alberta,” Mr. Thomson said. “Alberta has a unique economy. What we are interested in is making sure that Saskatchewan’s economy is competitive, not just with Alberta, but within the sectors that we are dealing with.”

Mr. Thomson said the push to reduce business taxes is part of tax reforms implemented by the government of premier Lorne Calvert that included a restructuring of oil and gas royalties three years ago.

© National Post 2006