OP-ED: How Alberta can get its low-tax mojo back

Tade Haghverdian writes: "Alberta boasts many unique advantages – awe-inspiring mountain vistas, bounteous natural resources and a young and dynamic population among them."

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Author: Tade Haghverdian

Alberta boasts many unique advantages – awe-inspiring mountain vistas, bounteous natural resources and a young and dynamic population among them. But there was only ever one double-uppercase “Alberta Advantage”.

Beginning in the 1990s under Progressive Conservative premier Ralph Klein, the province marketed itself across Canada and around the world as a low-tax haven based on three key factors. First, the province had no provincial sales tax. Second, it maintained the lowest corporate taxes in Canada. Third, instead of a productivity-inhibiting progressive personal income tax, it levied a unique flat tax of 10 per cent on all earned income.

This potent fiscal mix made Alberta an outlier among provinces and a preferred destination for investors and job seekers. At the peak of Alberta’s Advantage in the early-2000s, the province had the lowest combined provincial/federal corporate and personal tax rates of any jurisdiction in North America. As a result, the economy boomed, the provincial debt disappeared and Alberta often out-competed low-tax U.S. states such as North Dakota and Texas for workers and investment.

Today much of that advantage has been squandered. What can Alberta do to get its Advantage™ back?

In the early 1990s, Klein inherited a fiscal crisis from his free-spending predecessor Premier Don Getty. In response, the Klein government took dramatic action. Government spending was slashed by roughly $3,000 per person over four years to balance the budget. Then Klein set provincial treasurer Stockwell Day to work reforming the personal income tax system.

“We believed that a single-rate tax would not only encourage productivity but would also put up guardrails to prevent government from over-expanding,” a retired Day recalls today in an interview from his home in Kelowna, B.C. “A progressive tax system is inherently anti-productive,” he asserts. “It discourages extra effort and innovation because people know that working harder or earning more means getting taxed at a higher rate.”

Day had firsthand experience with this productivity-dampening effect. “When I was younger, I worked in a [meat] packing plant,” he says. “My colleagues would often refuse overtime because they believed the extra effort wasn’t worth it as their overtime would just be taxed away at a higher rate” if the additional income moved them into a higher bracket. “That always stuck with me. Why punish people who want to work harder?”

On January 1, 2001, Day’s new system took effect: a flat 10 per cent tax on all personal income. This ushered in an era of remarkable economic growth and provincial success coinciding with a boom in the oil and gas sector. By 2006, Alberta’s jobless rate had bottomed out at 3.1 per cent, the lowest in three decades.

Eventually, however, Alberta’s low-tax crown began to slip. After Klein retired in 2006, subsequent PC governments steadily boosted spending far beyond inflation and population growth. When the oil boom turned to bust, those fat surpluses turned to deficits. And then the government looked to additional sources of tax revenue.

In 2015, Rachel Notley’s NDP won the provincial election, ending 44 years of consecutive PC rule. She quickly raised corporate taxes and scrapped the flat tax, replacing it with a five-tier system that topped out at 48 per cent (including federal taxes). RIP Alberta Advantage.

Along with higher taxes, the NDP government bound the province up in red tape and regulations. In 2018, a global survey of petroleum executives revealed Alberta’s appeal had plummeted from the 14th most attractive energy investment spot in the world to 43rd.

Alberta’s distinction as a sales tax-free jurisdiction has also been under constant peril. A variety of experts and economists repeatedly demanded that the province bring in a sales tax to solve its overspending problem. The 2022 book A Sales Tax for Alberta: Why and How notes that “Without a provincial sales tax, Alberta is passing up $7 billion a year in stable, predictable revenue.”

It is a move Day warns against. “Once you introduce a sales tax, you lose that unique edge,” he says of Alberta’s former fiscal advantage. He frets that Alberta will become “just another jurisdiction” if it adds a sales tax to its growing mix of other taxes and deficits.

The current UCP government has turned the corner on some of the NDP’s biggest mistakes. Corporate tax rates have been lowered once again. And the most recent budget reduces the personal tax rate for the first $60,000 of income. But the 2025 budget also raises education taxes and other fees. And the budget itself incurs a $5.2 billion deficit, with further deficits projected through 2027, signalling a government still unprepared or unwilling to live within its means.

Restoring Alberta’s competitive edge will require bolder action that sets it far apart from all other provinces, as was the case in during the Klein era. A 2023 report by the Fraser Institute found that a flat income tax rate of 8 per cent, matching Alberta’s current corporate rate, would put Alberta among the 15 lowest-tax jurisdictions in North America. Such a move would also signal a return to Alberta’s earlier commitment to running a lean and cost-effective government, which was key to attracting investors and workers alike.

Alberta’s low-tax mojo may be damaged, but it’s not beyond repair. By restoring a flat tax, resisting the lure of new taxes, and reining in expenditures, the province can still reclaim its title as Canada’s king of fiscal prudence and prosperity.

The original and longer version of this story appeared at C2CJournal.ca.