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Will oil prices push banks to move West?

Tags: Oil
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Jeff Rubin, the former chief economist at CIBC, has written extensively about the impact that dwindling supplies of easy-to-extract energy sources will have on both the Canadian and global economies.

But, he now has a new twist: the impact higher energy prices will have on Toronto's prized financial sector, which currently employs more than 230,000 people.

"If oil prices keep going up, then Alberta is going to do things that Texas has done, like no state income tax. The same oil prices are going to cause tax increases in places like Ontario and Quebec as their tax bases stagnate," he says. "All of the sudden you have a big cut in personal income taxes in Alberta and maybe some of those bank towers [in Toronto] start heading West."

Rubin says that he wouldn't be surprised if over the next decade many of Toronto's major banks, law firms and service industries relocate to Alberta to take advantage of what he calls a "tax arbitrage."

"The fault lines in this country run along oil," he says. "Look what oil has done to Ontario, it's made the banker of equalization a have-not province."

Rubin believes that few economies -- even emerging ones, such as China -- are immune from higher energy prices.

"We are finding that zero interest rates or record budget deficits are not a substitute for cheap oil," he says. "China's speed limit has changed -- rather than growing at 10 percent, you're going to see that economy grow at 4 or 5 percent, but for Canada or the United States it might mean growing at 1 or 1.5 percent."

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