Want a middle class? Imitate Alberta and Saskatchewan

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Appeared in the Calgary Herald

There has been much handwringing over the claimed disappearance of the middle class. From a bestselling international tome to domestic tax-and-spend types who think higher taxes will create more middle-income earners, there is no shortage of those who over-focus on redistribution and underestimate the benefits of opportunity.

As an example of the latter, Alberta created 71,200 new jobs over the past 12 months while Saskatchewan saw a gain of 11,800 jobs. That compares to a gain of 39,400 in Ontario (a province with a much larger population) and 10,300 new jobs in British Columbia. (The other six provinces lost jobs in the past year.)

As for why, the usual explanation is that Alberta (and Saskatchewan) lucked out, that with oil and gas beneath one’s feet.

Except that dumb luck doesn’t explain much. Holland, Singapore and Hong Kong have little in the way of natural resources and yet prosper; Nigeria and Russia extract much oil and produce plenty of corruption but not much of a middle class.

At the national level, boring but important policy such as a stable currency and domestic peace matter to the creation of prosperity and the formation of the middle class; as do property rights, the rule of law, a lack of corruption, independent courts, smart but not over-burdensome regulation, an educated population, the size of government relative to the economy, and tax policy.

Space does not permit a digression into all such factors. Suffice to say, any country or province can mess up a natural advantage so policy and politics on the ground matter. But domestically, consider one issue—tax rates—that can be easily compared across provinces and which has an effect upon wealth creation and thus opportunities and jobs.

Alberta has long had the lowest overall provincial tax burden. For example, a two-parent, one-income family with two kids and employment income of $75,000 pays $3,446 less in total provincial taxes when compared with the same $75,000 couple in Ontario. The same family in Nova Scotia will pay $6,947 more in provincial taxes than if they lived in Alberta.

Alberta’s politicians have also generally and comparatively been smart on what might be called “opportunity policy.” Unlike Atlantic Canada, Quebec or Manitoba on taxes, or Ontario on power policy, or Quebec on excessive interference in almost every aspect of the economy, Alberta has historically not tied up entrepreneurs. That has allowed for wealth-creating opportunities and a cornucopia of new jobs. All of this has helped make Alberta the most middle class-friendly province in Canada.

The proof can be seen in another set of statistics, this time from the Canada Revenue Agency. When compared with other provinces, Alberta has the smallest share of people (42.2 per cent) who report income of less than $30,000. Saskatchewan is next (47.4 per cent). Compare those two provinces with the national average (50.6 per cent), Ontario (50.1 per cent), Quebec (53 per cent) and with all other provinces where half or more of tax filers have incomes of less than $30,000.

Now look at income between $30,000 and $100,000 and let’s assume that range as a proxy for the middle class. Fully 45.5 per cent of Albertans fall into that category. Again, only Saskatchewan (45.2 per cent) comes close to Alberta. Ontario has a smaller middle class (42.9 per cent) as does Quebec (42.7 per cent) with the national percentage at 42.9 per cent. Newfoundland and Labrador has the smallest proportion here, with just 39.7 per cent of the population reporting an income between $30,000 and $100,000.

More dramatically, in Alberta, 12.2 per cent of the population report incomes of over $100,000. That is almost double the proportion of all Canadians (6.6 per cent), higher than in Ontario (seven per cent) and starkly higher than Quebec where just 4.5 per cent of the population report taxable income above $100,000.

Or put another way, Alberta has less of its population in the very poorest income class and proportionately more in the middle- and high-income cohorts. And Alberta (and to a lesser degree Saskatchewan) performed this feat with massive in-migration from other provinces and from around the world.

Alberta is not perfect and has its own policy failures. But good overall provincial policy produces natural wealth creation. That in turn encourages job creation and explains why Alberta in particular is flourishing and does so with a burgeoning middle class.

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