Profits and Investment in Alberta

In recent years, about one-quarter of Canada’s corporate profits and business investment have been in Alberta.  The following figures are from Statistics Canada’s Provincial Economic Accounts.

As corporate profits have ballooned in Alberta, business investment has not increased as a share of the province’s economy. More than half of this investment has been in non-residential structures (e.g. tar-sands development), leaving a declining share of the economy devoted to machinery and equipment, the type of investment most closely linked to technological progress and improved productivity.

Profits and Investment in Alberta

(as percentages of GDP)

 

Corporate

Profits

Business

Investment

Machinery &

Equipment

1998

11%

25%

10%

1999

14%

21%

9%

2000

21%

21%

9%

2001

19%

22%

9%

2002

15%

21%

9%

2003

19%

20%

9%

2004

21%

21%

9%

2005

24%

21%

8%

2006

23%

22%

7%

Pre-tax corporate profits have doubled as a share of Alberta’s GDP since 1998, which is staggering given how quickly Alberta’s GDP has grown since then. In current dollars, Alberta corporate profits rose from $12 billion in 1998 to $54 billion in 2006.

Of course, governments cut corporate-tax rates during this period. Unfortunately, Provincial Economic Accounts figures on corporate taxes are currently available only through 2004. Between 1998 and 2004, Alberta’s corporate profits increased from $12 billion to $40 billion, but federal and provincial corporate taxes from Alberta increased only from $4 billion to $7 billion. In other words, after-tax profits rose at an even sharper rate than pre-tax profits.

The above figures on business investment exclude residential structures and inventories. Since businesses can finance investment by selling stock or borrowing money, investment normally exceeds profits. In a rapidly growing economy, one would expect the pursuit of future profits to drive current investment far above current profits. It is, therefore, striking that the huge run-up in profits has not been accompanied by any corresponding increase in investment as a share of GDP.

Non-residential structures, largely tied to resource extraction, accounted for two-thirds of Alberta’s business investment in 2006. Investment in machinery and equipment, which would be needed for resource processing or other types of economic diversification, has slowly declined relative to Alberta’s economy. These figures may reflect a de-industrialization of the province.

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