By Steve Lafleur
and Jason Clemens
The Fraser Institute
The decline of Alberta’s investment climate is grabbing headlines in both traditional and social media. While the policies responsible for this chill were announced months ago, the realities are starting to set in, with story after story of struggling businesses asking – indeed pleading – with the provincial government not to make matters worse by introducing additional taxes or regulations.
Given the need for investment to fill in the gaps left by the decline in oil prices, the province should encourage entrepreneurship. Instead, it’s doing the opposite.
A jurisdiction’s investment climate refers to the rules of the game that exist and the degree to which those rules encourage, or discourage, business investment and development. They include taxes, business regulations, access to markets, infrastructure, etc. The better the investment climate, the more likely investors, businesses and entrepreneurs will succeed.
An investment climate also relies on perception – how attractive a jurisdiction appears to business investment. The perception aspect of a jurisdiction’s investment climate is particularly sensitive to small but noticeable changes. These small changes can have disproportionate effects on the decision-making of businesses and entrepreneurs when choosing locations or pondering the expansion of existing businesses.
In both practical and perceptual terms, the governing NDP in Alberta have made things markedly worse. It’s important to recognize that the NDP took office during an incredibly volatile and challenging period as commodity prices, particularly oil and gas prices, plummeted. However, the NDP chose to forge forward with a host of policy reforms that have made Alberta visibly less competitive, and at the very least, less hospitable to business investment and entrepreneurship.
The wrath of tax increases, particularly the rise in business taxes and elimination of the country’s only single-rate personal income tax, signalled to Albertan business and entrepreneurs, as well as those outside the province, that the government wasn’t interested in tax competitiveness or the incentive effects related to higher taxes.
New regulations, higher minimum wages, near historic levels of government spendingfinanced by deficits and debt, to name just a few other policy reforms have all culminated to damage the province’s investment climate. Simply put, the Notley government has unwittingly told would-be investors and entrepreneurs that their efforts and talents are better deployed in other jurisdictions.
Ironically, it’s these very policies that discourage the type of investment required to diversify the economy in light of the decline of the energy sector in the province. Given that economic diversification is at the heart of the provincial government’s agenda, the government needs to refocus policies to attract rather than discourage investment.
This bull-in-the-china-shop approach to policy during difficult economic times is not unique to Alberta or the NDP. Indeed, the NDP under former Ontario premier Bob Rae pursued a very similar course until the reality forced the government to change course.
The provincial government needs to step back and recognize the important concerns raised by Alberta’s entrepreneurs. Neither micromanaging the economy nor waiting for oil prices to recover will pull the provincial economy out of its current funk. The path back to prosperity is through improving the province’s investment climate.
Steve Lafleur and Jason Clemens are economists at the Fraser Institute.