Fraser Forum

Carbon tax another blow to the Alberta Advantage

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For years, Alberta has maintained a strong investment climate vis-à-vis other provinces and other energy-producing jurisdictions, and this helped make it an economic powerhouse. A competitive, well-designed tax regime anchored an assortment of economic policies, known collectively as the Alberta Advantage.

Yesterday, the provincial government unveiled its new climate change strategy. Among other things, the strategy calls for a carbon tax of $20 per tonne starting January 2017, increasing to $30 in January 2018. This represents a new tax burden on Alberta businesses and families.

The new carbon tax cannot be considered in isolation; instead it should be recognized as the latest in a series of provincial policy choices over the past several months that have undermined the Alberta Advantage. More broadly, the proposed carbon tax would be yet another blow to Alberta’s investment climate, making the province a less desirable location for investment at perhaps the most inopportune time as the province struggles in the face of depressed commodity prices and weak economic performance.

Let’s recap some of the economically harmful tax hikes and policy announcements of the past few months. Since the spring, the provincial government has:

• Increased the general corporate tax rate from 10 to 12 per cent, a 20 per cent increase.

• Eliminated the pro-growth single 10 per cent tax rate on personal income, replacing it with five distinct tax brackets, and increasing the top marginal rate by 50 per cent.

• Announced significant increases in the minimum wage over the next several years, despite strong evidence that higher minimum wages increase unemployment, especially for young and low-skilled workers. Prior to Oct. 1, the minimum wage in Alberta was $10.20—it’s scheduled to rise steadily before reaching $15/hour in 2018. This represents an increase of 47 per cent.

• Further increased tax burden on Albertan families by raising taxes on various consumer products including alcohol and fuel.

• Created uncertainty in the energy sector by announcing plans for a royalty review and new environmental regulations. The government has since announced that there would be no rate increases until 2017, quelling concerns about immediate royalty increases, but the prospect of a significant royalty increase in the medium-term remains a concern.

The newly announced carbon tax will be layered on top of these policy changes, and must be considered in this context. For example, the combination of higher personal and corporate taxes with a new carbon tax is particularly troubling given that Alberta’s energy sector must compete with energy producing jurisdictions such as Texas, North Dakota and Wyoming, none of which have or are actively considering a carbon tax. Taken together, the policy changes will undermine the province’s ability to compete effectively with these jurisdictions.

The “Alberta Advantage” served Alberta well for many years. In just a few months, it has been largely undone.

In the context of anti-growth policies that have already been implemented, this week’s carbon tax announcement should be viewed as yet another blow to Alberta’s investment climate and another nail in the coffin of Alberta’s tax advantage.


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