When Alberta’s United Conservative government unveiled its most recent budget on February 27, there were few surprises. Program spending, despite the province’s growing population, was scheduled to stay relatively unchanged from recent levels. Job losses, salary cuts and benefit reductions in the public sector remain the UCP’s primary tools for lowering operating costs.
There wasn’t much good news on the surface of the Alberta budget, but according to Elton Ash, regional executive vice president of RE/MAX of Western Canada, a closer look at its job creation component should give real estate investors cause for optimism, particularly its focus on corporate tax rates and supporting innovation.
While Premier Jason Kenney has previously scrapped tax incentives brought in by the previous NDP government to lure high-tech start-ups, the new budget allots $200 million to attract talent in various growing industries, including AI and financial technology, with an eye toward reducing the provincial unemployment rate to five percent.
“If the government is successful in creating employment, it will be technology that will receive the greatest benefit from that,” Ash says, adding that Edmonton and Alberta were recently considered by CBRE to be among the top ten cities in Canada for attracting tech companies and employees.
A new corporate tax rate in Alberta, which is slated to shrink from its current 12 percent to eight percent by 2022, is also expected to spark investment in the province. There is little evidence to support the effectiveness of such trickle-down measures, but Ash has seen them work.
After the US Congress passed a massive corporate tax cut in 2017, Ash says RE/MAX’s head office in Denver found itself flush with millions in tax savings.
“It incentivized us to grow our employment base with some new projects. We bought two technology companies. We’ve been able, with those tax savings, to reinvest and bring more coders and programmers into the organization to really increase the digital research and development that we’re doing.
“That was a direct result of Trump’s tax cuts. So if the Alberta government is successful in this, it will certainly have a positive effect. But it will take some time.”
There is some distinctly mixed messaging in a budget where the job creation measures on one page are met with a loss of over 1,400 public sector jobs on another. Those eliminated positions, the majority of which will be seen in post-secondary education, will be added to the over 50,000 full-time jobs that have disappeared in the province since last June.
“It’s not going to be good,” Ash says of the job cuts. “The majority of these people are homeowners. If they’re looking at renewing their current mortgages or how they’re going to make ends meet, those are always the biggest questions.”
Just how accurate the UCP’s budgetary goals are is a matter of intense debate, as they are based on a USD $58 per barrel price for West Texas Intermediate oil. WTI is currently getting crushed – it was trading at USD $30.95 per barrel at time of writing on Monday – meaning the revenues the government is counting on may not materialize, resulting in further job and/or spending cuts in years to come.
But Ash doesn’t see Alberta, nor its real estate market, circling the drain any time soon.
“The interesting point to me is that over the past five years we haven’t seen price depreciation to a huge extent,” he says, recalling visions of 1981 when homes in the province lost a quarter of their value. “The worst price depreciation has been two-and-a-half percent annually two years ago. I think the saving grace for Alberta is its more diversified economy.”
Until the budget has been absorbed into Alberta’s fiscal bloodstream, it will be difficult to gauge its effect on the provincial housing market. But with the population growing, a reduction in the Bank of Canada’s interest rate and improved efforts to attract new industries, there is little reason for abject despair.
“We’re not overly pessimistic about the Alberta real estate market,” Ash says.
That pretty much says it all.
