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The unstated assumption behind Alberta’s deep corporate tax cuts is that the federal government will continue providing a 10 per cent tax abatement to Alberta companies, even if they pay only an eight per cent provincial corporate tax. However, it is unclear why Ottawa should go along with that.

The stated aim of Alberta’s corporate tax cuts is to make the province more competitive against other jurisdictions in attracting investment. The federal government has an interest in Canada’s competitive position relative to other countries. Indeed, its 2018 Fall Economic Statement provided accelerated tax deductions for new business investment in Canada.

However, Ottawa should not help one province gain a competitive advantage over another. If a lower corporate tax rate in Alberta attracts investment away from Saskatchewan, the country as whole would be no better off.

The most efficient allocation of business investment between provinces would be based on underlying economic factors. A reallocation of investment to take advantage of provincial tax differences reduces national prosperity.

If other provinces respond by cutting their corporate tax rate, all will have less revenue to fund important public services and none will have gained a competitive edge. The Parliamentary Budget Officer notes that each percentage point of federal corporate income tax collects $1.9 billion. If all provinces cut their corporate tax rates from the current norm of 12 per cent to eight per cent like Alberta, Canadians would lose $7.6 billion of annual revenue.