Sad news for Albertans on the Economic Freedom front
Until recently, Alberta was the most economically free jurisdiction in North America. High levels of economic freedom fostered prosperity and growth, helping make Alberta one of the most affluent jurisdictions on the continent. However, the Alberta government recently implemented a series of policy changes that will leave Albertans materially less free. Given the clear link between economic freedom and prosperity, expect these changes to have negative and long-term effects on living standards and economic opportunities across the province.
The Fraser Institute recently released its annual Economic Freedom of North America report, which compares economic freedom in the provinces of Canada, and the states of the United States, and Mexico. The report relied on the most recent data that can be compared across all jurisdictions, which is from 2013. Alberta was, at that time, the continent’s most economically free jurisdiction.
This result did not come as a surprise—Alberta has regularly topped the economic freedom 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.
The same policies that made Alberta the most economically free jurisdiction in North America also helped make it one of the most prosperous. Robust evidence shows a strong relationship between economic freedom and prosperity. Jurisdictions that provide moderate taxation, limited government, and flexible labour markets tend to be the most economically successful.
Alberta was no exception. The province’s economically free policy framework helped create levels of economic prosperity that were the envy of most other North American jurisdictions. For example, in 2014 Alberta’s personal income per capita was CAD$58,128, approximately 15.6 per cent higher than the North American (Canada and U.S.) average of CAD$50,264. Simply put, Alberta’s high levels of economic freedom contributed to a high quality of life for its people.
Much of course has change since 2013, particularly in Alberta. Specifically, the Alberta government announced a slew of policy and regulatory changes which, collectively, have made Albertans much less economically free.
For example, in 2015 the provincial government substantially increased both personal and corporate income tax rates. 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 income tax hike was accompanied by a 20 per cent increase in the general business tax rate.
Furthermore, the provincial government announced a new carbon tax which will further increase the tax burden faced by Albertan consumers and businesses. Taken together, these tax increases mean Albertans will keep less of the money they earn, leading to less economic freedom.
In addition to raising taxes, Alberta’s provincial government introduced regulatory changes that will also reduce economic freedom. For example, the province announced it will increase the minimum wage by fully 47 per cent, reducing the opportunities available to young and inexperienced workers seeking employment.
Many of these changes are significant individually but, taken together, they represent a freedom-restricting transformation in the province’s policy framework.
As a result of this transformation, there is little question that Alberta’s economic freedom and its ranking within North America will decline. While the policy changes are too recent to have informed this year’s comparative report, it is clear that once they are integrated into future rankings, Alberta will fall from its long-held top spot.
As recently as 2013, Alberta was North America’s most economically free jurisdiction. Not coincidentally, it was also the most prosperous. It is therefore sad news for Albertans that in the space of just one year, a policy framework that promoted more freedom and prosperity has been fundamentally altered in ways that will almost certainly produce less of both in the years ahead.