Troubled Waters—Alberta’s self-inflicted wounds
Over the past year or so, Alberta’s economy has been hit hard by external factors beyond the control of the provincial government. Of greatest importance, of course, has been the fall in commodity prices which has led to a recession in the province, a spike in unemployment, and a marked decline in resource revenues.
Unfortunately, the provincial government has generally made matters worse by reducing the province’s competitiveness. Sadly, the suite of economically harmful policies that have been enacted or announced over the past year will dampen economic growth and undermine the province’s economic competitiveness long after the current economic crisis is over.
Among the most important of these self-inflicted wounds has been a variety of tax increases introduced by the provincial government over the past year that have essentially ended Alberta’s tax advantage.
For starters, the provincial government has done away with its pro-growth single rate approach to personal income taxes, creating a new five-bracket tax system with a top tax rate increasing by 50 per cent.
Furthermore, the government increased the corporate income tax rate (one of the most harmful components of Alberta’s tax mix) by 20 per cent. On top of these increases to existing taxes, the province also announced last year that it would introduce a carbon tax, which will further increase the tax burden faced by Albertan businesses and consumers.
But Alberta’s self-inflicted policy wounds aren’t confined to tax policy. There are other areas where provincial policy choices have undermined competitiveness. For example, the province has shown that it’s likely to be active on regulatory issues in the labour market, announcing it will increase its minimum wage by 47 per cent to $15 per hour by 2018.
There’s no doubt that Alberta’s economy has been hit hard by forces outside of the government’s control. Given the economic headwinds facing the province, it is all the more important for the government to get policy right, and create the economic conditions for a robust recovery. Unfortunately, the government has largely done the opposite, enacting a number of policy changes that will undermine economic growth and make the province less competitive relative to key peer jurisdictions in both Canada and the United States.
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