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Yes, the Alberta tax advantage is gone

504 words, with tag

By Steve Lafleur
and Ben Eisen
The Fraser Institute

VANCOUVER, B.C. Jan. 11, 2017/ Troy Media/ – The Fraser Institute recently released a study documenting the erosion of Alberta’s once substantial tax advantage. Specifically, it showed that, until recently, Alberta benefitted from uniquely competitive and pro-growth personal and corporate income tax systems, but these key advantages have been wiped away by recent tax hikes.

alberta tax advantageIn response, Alberta Finance Minister Joe Ceci said the study was cherry-picking certain taxes to discuss. This response is puzzling. The corporate and personal income taxes are the two largest sources of provincial taxes, cumulatively representing 43 per cent of all own-source revenue in 2016/17. Further, they have been identified by economists as among the most economically damaging types of tax. To suggest it’s a mistake to focus on the increases to these two taxes when evaluating Alberta’s tax competitiveness is a bit like asking aside from that, Mrs. Lincoln, how was the play?

Again, there’s overwhelming evidence that high personal income taxes discourage work, entrepreneurship and investment.

And corporate income taxes are even more destructive. In an aptly named study, The Costliest Tax of All, economists Ergete Ferede and Bev Dahlby found that, for Alberta specifically, a corporate tax increase would be three times more damaging than raising an equivalent amount of new revenue through a sales tax.

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So to be clear, documenting changes in these crucial tax rates isn’t cherry picking. Rather, it’s measuring how important changes in government policy will affect the economy and the lives of Albertans.

And the results of these measurements aren’t pretty. Two years ago, Alberta enjoyed the lowest corporate income tax rate and lowest top income tax rate (combined federal/provincial/state) in Canada or the United States. This competitive edge was at the heart of the Alberta Tax Advantage, which helped attract investment and people to the province for years. Now, Alberta has the 16th highest top personal income tax rate in North America, and is near the middle of the pack in Canada on corporate taxes.

Given these changes, it’s not surprising the Notley government would rather we not focus on these taxes. But the reality is that while the corporate and personal income tax hikes are perhaps the most economically destructive tax increases implemented to date, they are not the only ones. Just the other day, a substantial new carbon tax came into effect. Contrary to the advice of most economists, the tax was not made revenue-neutral by cutting other taxes commensurately – which means that the net result is even more money flowing out of Albertans’ pockets.

The reality is that two years ago, Alberta enjoyed a clear tax advantage within North America with respect to both personal and corporate income taxes. This advantage helped attract people and investment to the province. The decision to undermine Alberta’s tax advantage by increasing these tax rates have harmed the province’s growth prospects and will diminish economic opportunity and prosperity for Albertans and their families.

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Steve Lafleur and Ben Eisen are analysts with the Fraser Institute, and co-authors of The End of the Alberta Tax Advantage.

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