Kenney government introduces bill allowing multi-year tax incentives for business

Click to play video 'Alberta announces amendment giving municipalities more flexibility to offer business tax breaks' Alberta announces amendment giving municipalities more flexibility to offer business tax breaks
WATCH: Bill 7 will give municipalities more flexibility and power to offer longer tax incentives for new and existing businesses. Global’s Tomasia DaSilva has reaction from business owners and the mayors of Alberta’s two largest cities – Jun 4, 2019

Municipalities in Alberta could soon provide longer-term tax incentives to companies to attract and keep businesses.

Jason Kenney’s United Conservative government introduced Bill 7, the Municipal Government (Property Tax Incentives) Amendment Act, on Tuesday afternoon.

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Under the proposed amendments, municipalities would decide on how, for how long, and to whom the tax incentives would be offered. Municipalities could offer the tax incentives to new or existing businesses through application, to certain industries or neighbourhoods and to a maximum of 15 years.

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The tax incentives would be applicable on the municipalities’ share of the business taxes.

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The bill continues the UCP government’s mandate of making Alberta increasingly attractive to business and industry.

Other jurisdictions like B.C., Saskatchewan, Texas and Louisiana have similar multi-year municipality tax incentives.

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Under the current Municipal Government Act, municipalities can cancel, refund or defer collection of property taxes in a specific year, which is intended to provide relief during hard times. Municipal governments can also provide multi-year tax incentives for the redevelopment of brownfield properties.

READ MORE: Alberta introduces bill to slash corporate income taxes by a third to 8%

Under the amendments, the Alberta government hopes municipalities will attract more businesses that would, at a later time, become part of that municipality’s paying tax base.

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Calgary Mayor Naheed Nenshi and Edmonton Mayor Don Iveson welcomed the flexibility offered to the cities by the bill.

“I’d be very interested to see if we can actually use these regulations to accomplish what we’re trying to do, which is to give small businesses looking at huge tax increases a break,” Nenshi said Tuesday.

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However, Iveson said metropolitan areas with widely dispersed industrial businesses, like in Edmonton and surrounding areas, could create unequal economic advantages depending on the bylaws in each municipality.

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“At the regional scale, I do have a concern about equity,” Iveson said Tuesday. “If some municipalities around us have more fiscal capacity to offer more aggressive incentives, they can attract more business to have more fiscal capacity. And others don’t have that capacity to compete. Then an existing inequity could be made even worse.”

But Iveson hopes open lines between local governments can prevent that.

“I think it would be wise for us to have a conversation about how we’re going to use these tools to grow our regional economy and not necessarily undermine each other.”

Potential for unintended consequences

Iveson also pointed out the potential for rivalries to develop among industries within the same municipality.

“If a municipality starts reducing taxes for certain businesses just because, then I think that risks creating a two- or even three-tier arrangement in the region and even with other municipalities.

“But it also (creates a) two-tiered system among taxpayers within the existing municipality, and I think existing taxpayers would have something to say about that.”

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Nenshi warned that this legislation could have unintended consequences.

“We want to make sure that this doesn’t lead to a race for the bottom, with different jurisdictions who are competing for businesses to start giving (businesses) tax breaks and tax breaks and tax breaks,” the Calgary mayor said.

“That can be a very dangerous game — a real dangerous game — of corporate welfare.”

Downtown vacancies

The drop in oil prices in 2014 resulted in an exodus from the downtowns of Alberta’s major cities. That also hit office property values, leaving some municipal governments trying to figure out how to continue to provide city services despite a dwindling tax base.

READ MORE: Calgary’s downtown vacancy rate predicted to stay in 20% range into next decade

Calgary’s downtown vacancy rate sits at 26.5 per cent as of the first quarter of 2019, according to commercial real estate firm CBRE. Downtown office vacancy in Edmonton sits at 18.4 per cent. Vancouver and Toronto have Canada’s lowest downtown vacancy rates at 4.7 and 7.1 per cent, respectively.

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Calgary’s city council has been seeking ways to make up for the $257-million impact the drop in downtown office property values has had.

Two current suggestions from Calgary city councillors include a mix of pay cuts, further budget reductions, the use of a $70.9-million reserve fund and the repurposing of a portion of the Opportunity Calgary Investment Fund.

Nenshi said he looks forward to reading the bill in its entirety, as it may help with Calgary’s downtown vacancy problem.

“Maybe there’s enough flexibility to look at what to do on downtown towers.”

“Now, to be honest, the assessment [is] based on the downtown falling off a cliff,” Nenshi said. “You probably don’t need to get people tax incentives to move downtown. There are other issues. The taxes were already super low.”

–with files from Aurelio Perri and Vinesh Pratap