Quote:
Originally Posted by firebug
As the individual in my firm who does all of the project valuation modelling I thought I'd take a look at some of our historical approved projects to see how much of an impact the tax change makes...
10% Tax Rate: IRR 14.2%; PVAT7% $2,427.4MM
12% Tax rate: IRR 13.9%; PVAT7% $2,378.2MM
So a while a 20% tax increase sounds like a big bogeyman, it only impacted our PV by 2% (What a surprise ;-). A change that small is unlikely to affect project approval for all but the most marginal of projects (which likely wouldn't have flown anyways).
Those who are trying to blame the NDP for the lack of corporate investment in the current economic climate are barking up the wrong tree and are displaying their lack of real-world experience in these matters.
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This example is fine and I agree with you that the change is not going to have a material impact on very many projects on a micro level. Projects that had a positive NPV previously aren't going to become uneconomic all of the sudden solely due to the corporate tax increase.
However, I think you need to be looking at this at a macro level from a capital budgeting perspective. Companies operating across multiple jurisdictions have limited capital to invest and a multitude of potential projects to invest in. The 2% (or should I say 0.3 percentage point
) decrease in IRR in your example may not seem like a lot, but it will cause Alberta based projects to move down the pecking order on many priority lists. While the change may seem immaterial to you, it undeniably will have an impact on investment inflows to Alberta.