By Fred McMahon
and Ben Eisen
The Fraser Institute
Things are changing in Alberta – and not for the better.
Each year, the Fraser Institute publishes the Economic Freedom of North America report. It compares economic freedom in Canada’s provinces, and states of the United States and Mexico. Alberta regularly ranks as the freest jurisdiction on the continent.
Unfortunately, that will likely change in the years ahead.
Fred McMahon
Alberta has topped the rankings because of policies that in the past included single-rate income tax, moderate corporate income tax, no sales tax and a growth-oriented regulatory framework that left Albertans largely free to pursue their interests without facing heavy-handed regulations or confiscatory taxation.
Alberta remains on top in the just-released report. However, the report reflects conditions in 2014, the year from which most comprehensive data is available. At that time, Alberta was the most economically free jurisdiction in the continent.
But since then, the government in Edmonton has ushered in a number of policy changes that restrict economic freedom and endanger the economic engine that has produced growth, job creation and prosperity. The changes have not yet had their full negative impact on Alberta’s score in our report, but they’ve already damaged the prospects of Albertans.
How?
By attacking economic freedom on three fronts: regulation, taxes and spending.
For example, on the regulation front, the government is steadily increasing the minimum wage by 47 percent. This policy will reduce opportunities for young and inexperienced workers.
Ben
Eisen
Tax rates are soaring. On personal income taxes, the province abandoned its pro-growth single rate in favour of a multi-bracket system, increasing the top rate by 50 percent. This hike was accompanied by a 20 percent increase in the general business tax rate. And a carbon tax will be implemented on Jan. 1. These tax increases mean Albertans will keep less of the money they earn, reducing economic freedom.
While these tax increases are relatively recent, Alberta has steadily boosted spending over the past decade, leaving less room in the economy for free exchange. In 2016-17, the government plans to spend $51.1 billion, or about $12,000 per Albertan, a 20 percent increase (adjusting for inflation) in 10 years.
This spending growth has created a time bomb that could further damage economic freedom. Despite significant tax increases, Alberta is running large budget deficits. The provincial economy collects approximately $10,000 per Albertan, roughly what it did a decade ago (after adjusting for inflation) but is projected to run a $10.8-billion deficit in 2016-17. That’s about $2,500 per Albertan beyond what is collected.
In fact, Alberta this year will become a net debtor for the first time since 2000-01. And debt is expected to rise substantially over the next few years of projected deficit spending. In other words, Albertans’ taxes will start to go to pay off escalating debt.
All of these policy changes will undoubtedly reduce Alberta’s economic freedom score in future editions of our index. Given the link between economic freedom and prosperity that has been clearly established by economic research, these changes will have negative long-term effects on living standards and economic opportunities for Albertans and their families.
Alberta sat atop our Canadian economic freedom rankings for years, thanks to numerous policy advantages. So the province has a long way to fall and, even with recent harmful policy changes, it will likely take several years for the full effects to be felt.
But over the past 18 months, the province has started down a path away from economic freedom – and that’s also a move away from prosperity and job creation.
Fred McMahon and Ben Eisen are analysts at the Fraser Institute.
Fred and Ben are Troy Media contributors. Why aren’t you?
The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.
