Alberta austerity: Will Jim Prentice change the tax advantage?

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The Alberta Advantage: it's a phrase that served as the province's slogan for a decade-and-a-half, the inspiration for a popular Torontonian band's name and perhaps the most euphemistic of all titles in Canadian politics (although the federal government's Economic Action Plan campaign also makes a strong case).

The logic of the Alberta tax "advantage" seems pretty straightforward: keep personal and corporate income taxes staggeringly low and watch capital flow into the province from other regions that feature higher taxes and/or less access to natural resources.

Easy, right?

Such rhetoric's been regurgitated in various forms by Alberta's finance department -- now headed by former union leader Robin Campbell -- for decades. Last count put Alberta at a "tax advantage" of $11.6 billion over the next most competitive province, British Columbia.

But with a looming budget around the corner -- one that Premier Jim Prentice has ominously dubbed "the most significant in modern times" -- some are loudly repeating long-held concerns about the alleged advantage. Namely that it's "shifting disproportionate amounts of the province's annual tax share to women and low-income men in order to fund tax breaks for corporations and high-income individuals," as Queen's University tax law professor Kathleen Lahey put it in a recent paper titled The Alberta Disadvantage.

The "detaxation" that Lahey references has been a core element of the much-promoted tagline. Personal and corporate income taxes started falling in 2000: what had previously been a two-bracket system for income turned into a flat tax of ten per cent, while corporate tax rates slipped by five per cent.

All up, Lahey calculates that the loss of that revenue -- combined with the removal of health premiums -- costs the province around $5.7 billion a year. 

But those tax breaks have largely benefited men working in the oil and gas sector and have come at the cost of critical investments in infrastructure, health care, education and social assistance.

It's a situation that Public Interest Alberta executive director Bill Moore-Kilgannon attempts to highlight: full-day kindergarten, a child-care plan and investments in post-secondary education are all public services that could be provided with fair taxation, he says.

"To imply then that we don't have any options is patently ridiculous," he says. "That's what we have to have as a discussion in Alberta: OK, if we want investments in core public services -- things that are going to matter to all Albertans -- then how are we going to fund it in a way that is equitable?"

The options being entertained by Prentice and Campbell are fairly limited in number: a sales tax to plug the hole was briefly floated but quickly withdrawn once it became apparent that many voters found such a proposal unappealing. Re-introducing health premiums has been rumoured. Public sector wages have been repeatedly targeted by the government. But raising corporate taxes or resource royalties has been entirely swept off the table as revenue-generating sources. All because of that supposed tax advantage.

"If they're not fleeing Saskatchewan, why would they flee Alberta?" asks Moore-Kilgannon, noting that the neighbouring province features a 12 per cent corporate tax rate. "They can't take the oil with them."

The personal income tax side of the equation's a little more encouraging, notes Melanee Thomas, political science professor at the University of Calgary. Albertans don't start paying tax on earned income until a higher income level compared to other provinces, says Thomas. But at the same time, the province's refusal thus far to disrupt the flat tax structure results in an unfair tax burden on the lower- and middle-class, as ten per cent means much more to someone who's earning $50,000 than someone who's making $500,000.

"When we talk about progressive taxes, and taxes being fair in that sense, it comes down to the ability to pay," Thomas says. "The sensible solution is just to add a very small, slightly higher incremental tax on earned income over and above a certain amount. Maintain the high exemptions, drop that marginal rate from ten to eight and then tax income over a certain amount at a higher rate." 

An election is expected to be called swiftly after the release of the budget. The Progressive Conservatives haven't been seriously threatened since their takeover of the legislature in 1971, with the exception of a scare from the Liberals in 1993.

Moore-Kilgannon notes that many Albertans have been convinced that the "tax advantage" is still a reality and benefiting everyone, even though it's clearly not. Thomas also chalks up the concept's illegitimate persistence to a bit of a feedback loop.

"There's a great deal of disengagement: here, people are really quite candid about why they don't bother voting, because nothing ever changes," she says. "It's more acute than elsewhere. The PCs will use the upcoming election as democratic cover for whatever governance they're going to do after, because they'll say they have a mandate."

 

James Wilt is a freelance writer in Calgary. He's previously worked as staff writer for Fast Forward Weekly, the city's alt-weekly newspaper, and has contributed to VICE Canada, Geez magazine and OpenFile.

Photo: flickr/ Dave Cournoyer

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