Alberta turns away from economic freedom
Each year, the Fraser Institute publishes the “Economic Freedom of North America” report, which compares economic freedom in the provinces of Canada and states of the United States and Mexico. Historically, Alberta has regularly ranked as the freest jurisdiction on the continent. Unfortunately, that will likely change in the years ahead.
Alberta has topped the rankings because of policies including a single-rate income tax, a moderate corporate income tax, no sales tax and a growth-oriented regulatory framework that left Albertans largely free to pursue their own interests without facing heavy-handed regulations or confiscatory taxation.
In this year’s just-released report, Alberta remains on top. However, the data are from 2014, the most recently available comprehensive data. At that time, Alberta was the most economically free jurisdiction in the continent.
But since then, the government in Edmonton has ushered in a number of policy changes, which restrict economic freedom and endanger the economic engine that has produced growth, job-creation and prosperity. The changes have not yet had their full negative impact on Alberta’s score in our report, but they’ve already damaged the economic prospects of Albertans.
How? By attacking economic freedom on three fronts—regulation, taxes and spending.
For example, on the regulation front, the government is in the process of steadily increasing the minimum wage by a total of 47 per cent, reducing opportunities for young and inexperienced workers.
Tax rates are soaring. On personal income taxes, the province abandoned its pro-growth single rate in favour of a multi-bracket system, increasing the top rate by 50 per cent in the process. This hike was accompanied by a 20 per cent increase in the general business tax rate. And a new carbon tax. Taken together, these tax increases mean Albertans will keep less of the money they earn, reducing economic freedom.
While these tax increases are relatively recent, Alberta has steadily boosted spending over the past decade, leaving less room in the economy for free exchange. In 2016-17, the government plans to spend $51.1 billion, or about $12,000 per Albertan, a 20 per cent increase (adjusting for inflation) in 10 years.
This spending growth has created a time bomb that could further damage economic freedom. Despite significant tax increases, Alberta is running large budget deficits. The provincial economy collects approximately $10,000 per Albertan, roughly what it did a decade ago (after adjusting for inflation) but is projected to run a massive $10.8 billion deficit in 2016/17. That’s about $2,500 per Albertan.
In fact, Alberta this year will become a net debtor for the first time since 2000/01. And debt is expected to rise substantially over the next few years of projected deficit spending. In other words, the taxes of Albertans will start to go towards paying off an escalating debt.
All of these policy changes will undoubtedly reduce Alberta’s economic freedom score in future editions of our index. Given the link between economic freedom and prosperity that has been clearly established by economic research, these changes will have negative long-term effects on living standards and economic opportunities for Albertans and their families.
Alberta sat atop our Canadian economic freedom rankings for years, thanks to numerous policy advantages. So the province has a long way to fall and, even with recent harmful policy changes, it will likely take several years for the full effects to be felt. But over the past 18 months, the province has started down a path away from economic freedom, which is also a move away from prosperity and job-creation.