Fraser Forum

New jobs numbers underscore need for improved investment climate in Alberta

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New Statistics Canada data show that Alberta’s unemployment rate climbed from 7.9 per cent to 8.6 per cent in July—the highest rate the province has experienced since 1994. While this is merely a snapshot of a single month, the provincial unemployment rate was on average 2.1 percentage points higher between January and July in 2016 compared to the same period in 2015, highlighting the precarious state of the provincial economy.

While the provincial government isn’t responsible for the decline in oil prices and ensuing job losses in the oil and gas sector, the government’s priority should be to create an investment climate that attracts and retains existing investment. Unfortunately, its policy choices have done the opposite.

The Notley government inherited a fiscal mess when it took power last May. Previous governments in Alberta had collectively run seven deficits in eight years driven by rapid spending increases, persistently above the combined rate of inflation plus population growth. These deficits occurred even with historically high oil prices bolstering government revenue. When the good times ended with the collapse in oil prices, the provincial government did not exercise the fiscal discipline needed to bring spending in line with revenue.

Instead, the provincial government chose to increase personal, business, and carbon taxes, and to further increase spending. The tax increases had the perverse effect of making a difficult situation worse as Alberta became a less-attractive place to work and invest. Alberta once had a marked income tax advantage over nearly every jurisdiction in Canada and the United States (it had the lowest combined federal and state/provincial top marginal tax rate). The tax changes ended Alberta’s single 10 per cent rate and moved to a five-bracket system with a top rate of 15 per cent, making it more difficult to attract and retain skilled workers. Additionally, the 20 per cent increase to the corporate tax reduces the province’s attractiveness as a destination for investment. The provincial economy has faltered and entered into a recession, meaning these changes happened at the worst possible time.

The provincial government has not just raised key tax rates. It also imposed new regulations that will result in less economic activity. Most notably, the province has begun phasing in a planned increase in the minimum wage to $15 per hour by 2018.

Rather than attempting to tax and regulate their way to prosperity, the Alberta government should focus on creating an attractive investment climate. Digging a deeper hole is the wrong approach.


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