alberta taxes

Outlaw the taxes, not the tax escalators

An escalator that adjusts for inflation is merely maintaining the real purchasing power involved in the charge.

What would Canada’s finances look like without Alberta?

Over 10 years, approximately 270,000 more people moved to Alberta from the rest of the country than moved from Alberta to somewhere else in Canada.

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A Friend in Need: Recognizing Alberta's Outsized Contribution to Confederation

Historically, Alberta has made an outsized contribution to Canada’s economy and federal public finances. This report quantifies Alberta’s role in Canada’s economic and fiscal well-being in recent years.

Specifically, it shows that Alberta has contributed disproportionately (relative to its population) to federal revenue, GDP growth, job creation, and business gross fixed capital formation.

For example, between 2004 and 2014, the number of private sector jobs in Alberta increased by an average of 2.7 percent annually. By comparison, the ten-province average for this metric was just 1.0 percent. Between 2004 and 2014, 32.5 percent of all private sector jobs created in Canada were created in Alberta. 

Without Alberta’s large contributions to Canadian economic growth, the country’s recent overall economic performance would look very different. 

Consider the popular narrative that holds that Canada survived the 2008/09 recession and is thriving in the post-recession years to a greater extent than the United States. If we exclude Alberta from the country’s total, the rest of Canada’s average real per person annual economic growth is just 1.1 percent since 2010. This compared to 1.2 percent in the United States. In short, Canada’s overall superior economic performance relative to the United States in the post-recession era is largely attributable to strong growth in Alberta.

Alberta’s strong economic growth and job creation did not exclusively benefit people already living in that province. The jobs and high incomes created in Alberta during this time generated opportunities for people across the country who were willing to relocate to Alberta to take advantage of them. Between 2004 and 2014, net interprovincial migration to Alberta was positive by 270, 926 people. Many from elsewhere in Canada improved the lives of their families by seizing opportunities in Alberta’s booming economy. 

Alberta’s booming economy was also beneficial to the rest of the country through the province’s contribution to federal finances. Between 2007 and 2015, Albertans paid $188.6 billion more in federal taxes than they received in transfers and federal programs. This measure excludes contributions and payments from the Canada Pension Plan. Once these amounts are included, Alberta’s net contribution rises to $221.4 billion. Without Alberta’s large contributions to federal finances, the federal government would have run much larger deficits during and after the 2008/09 recession, and since then would not have come close to balancing its budget. 

After the paper documents Alberta’s contributions to Canada during its period of economic strength, we turn to the less happy economic circumstances facing Alberta today. Specifically, having shown how important it is for Canada to have a strong Alberta, we itemize a number of actions that governments across the country can take to help improve Alberta’s prospects for a strong recovery. These actions include: refusing to obstruct the construction of needed energy infrastructure that has been deemed environmentally safe; not further undermining Alberta’s tax competitiveness through federal tax increases; and re-examining dimensions of the country’s system of federal transfers.

Of course, the policy decisions that will most influence Alberta’s future growth prospects are not being made in other parts of the country—they are being made in Edmonton. Unfortunately, Alberta’s recent policy choices are undermining these prospects. Substantial rate increases to economically inefficient taxes along with spending increases that have contributed to a rapid run-up in debt are two examples of recent policy choices that will leave the province fighting headwinds as it tries to grow economically. 

Alberta has much work to do in order to begin helping itself and creating the conditions for a strong sustained recovery, but the decisions made by governments in other parts of the country can make that work easier or harder. Canadians in other provinces should consider Alberta to be a “friend in need” and avoid policy choices that will unduly hinder Alberta’s prosperity.

Census results prove that Canada needs a strong Alberta economy

Alberta tax policies have moved in the wrong direction, reducing the incentive to invest and create jobs.

Carbon tax exacerbates harm from other tax hikes in Alberta

In 2015, the Notley government scrapped the single-rate personal income tax.

Yes, Alberta’s tax advantage is gone

Alberta now has the 16th highest top personal income tax rate in North America.
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This paper examines the extent to which the tax policy changes introduced in Alberta in 2015 have diminished Alberta’s tax advantage relative to peer jurisdictions.

Specifically, we compare key tax rates in Alberta before and after the recent tax policy changes to assess whether Alberta still holds a significant tax advantage over other provinces and peer jurisdictions in the United States. We focus on three areas of tax policy that have historically composed the main pillars of Alberta’s “tax advantage”: personal income taxes, corporate income taxes, and sales taxes.

We find that whereas in each of these areas Alberta until quite recently enjoyed a substantial advantage over all Canadian provinces and most US energy states, that advantage has been substantially undermined or completely erased for two of the three pillars (personal income taxes and corporate income taxes).

Specific findings include:

  • Before the tax policy changes, Alberta had the lowest corporate tax rate in Canada. Alberta’s “advantage” in this area is gone. Alberta’s new provincial corporate tax rate is higher than British Columbia’s and Ontario’s, and is almost identical to those in Saskatchewan, Manitoba, and Quebec. Alberta can now be considered “middle of the pack” within Canada on corporate taxes.
  • In 2014, Alberta had the lowest top combined federal-provincial/state tax rate out of 60 Canadian provinces and American states. After the tax policy changes, Alberta’s top personal income tax rate is now the 46th lowest. That means Alberta’s top rate is now in the highest third of North American jurisdictions. Comparing the marginal personal income tax rate at four different income levels reveals that Alberta no longer has a distinct tax advantage in any of those levels examined.
  • Alberta retains one pillar of its tax advantage in the Canadian context, as it alone among the provinces does not have a provincial sales tax. Relative to American energy jurisdictions, however, Alberta does not necessarily enjoy a sales tax advantage as there are several states with neither a federal nor a state-level sales tax.

We conclude that the notion of a uniquely competitive and pro-growth tax regime that provides the province’s economy a distinct advantage is largely obsolete.

This development has important implications for Alberta’s future economic growth prospects. To provide context for these implications, this paper briefly discusses the research literature on the relationship between tax rates and economic growth, as well as the evidence surrounding the economic impact of different types of taxes.

The literature suggests low and competitive tax rates are generally beneficial for economic growth, particularly with respect to corporate income taxes and personal income taxes. We demonstrate that Alberta’s experience is consistent with this evidence, by providing an analysis of the province’s economic performance during the life of the province’s “tax advantage.” This analysis shows that generally, the province economically outperformed the rest of the country and most peer jurisdictions during that time. For example, Alberta’s real GDP growth rate between 2001 and 2014 (at 3.3%) was higher than all other provinces and behind only North Dakota among US energy states.

In a discussion section, the paper also considers the fiscal context in which recent tax policy questions were made, assessing the extent to which they were necessitated by the emergence of large budget deficits. We find that the provincial government had other options available to it to shrink the province’s deficit, such as reducing and reforming provincial expenditures, which have increased rapidly in recent years. This approach would have preserved Alberta’s tax advantage, and economic theory suggests it would have been beneficial for the province’s short- and long-term economic growth prospects relative to the course the government has in fact taken.
 
In short, the erosion of Alberta’s tax advantage documented here should be viewed as the result of discretionary policy choices rather than a necessity imposed upon the government by fiscal circumstances. As a result of these choices, we conclude that the Alberta tax advantage has been, in large measure, erased.

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