In its recent Speech from the Throne, the new Alberta government reiterated its plans to make life more expensive in Alberta. Over time, the NDP government will a) raise business income tax by 20 per cent (to 12 per cent from 10 per cent), b) hike the minimum wage by almost 50 per cent (to $15 an hour from $10.20 per hour), c) add multiple new provincial personal income tax brackets while increasing the top bracket by 50 per cent and d) may hike resource royalties after its promised royalty review.
All that means there’s a great opportunity to create jobs and prosperity – in Saskatchewan, or perhaps British Columbia.
For those who think economic success and employment are accidental and inevitable creations, the mere result of natural resources in or above ground, the next several years will be a useful case study.
Unlike Hawaii, which has warm weather and “sells” that to tourists, the three most Western provinces have oil, gas and an assortment of minerals or other natural resources.
That does not preclude other sectors from proliferating – one hopes they do. But resources will matter to Western prosperity for some time. That means such provinces must always think hard about their policies to ensure they attract – not repel – investment. After all, an energy company can drill a well in Saskatchewan (or in North Dakota) as easily as in Alberta.
On taxes, given where the Alberta government is headed on policy, Saskatchewan and B.C. both have an opportunity to lower their tax rates and potentially attract high-income earners.
For instance, 12.2 per cent of all Alberta tax-filers reported total income of $100,000 or more in 2011, the latest statistical year available. That compares to Saskatchewan (7.4 per cent), Ontario (seven per cent) and B.C. (6.3 per cent).
Simply put, if B.C. or Saskatchewan can lower their higher top marginal rates, they might attract some tax filers who have filed in Alberta as residents of convenience for tax purposes. Do that, and B.C. or Saskatchewan might find that at worst, they experience little if any revenue loss to their treasuries. At best, they’ll attract entrepreneurs and others who help juice their economies.
Now think about business taxes. When Alberta raises its general provincial corporate tax rate to 12 per cent, that puts Alberta higher than B.C. (11 per cent) and on par with Saskatchewan on the general rate (12 per cent) but higher than Saskatchewan’s manufacturing and processing corporate tax rate (10 per cent).
If B.C. and Saskatchewan want to attract more investment, businesses, and entrepreneurs, lower personal and business tax rates help. So they might as well cut their high marginal rates, drop their corporate tax rates, and undercut Alberta. (Manitoba could be part of this experiment too though its’ overall high personal tax take requires a deeper cut; on the corporate side, at 12 per cent, Manitoba will only match Alberta’s new higher rate.)
There are other reforms that Saskatchewan and B.C. should work on. If the B.C. government and various First Nations governments can ease the way for investment, that would help. In Saskatchewan, if the Brad Wall government stopped pandering to anti-out-of-province and anti-foreign investment sentiment, that would be economically helpful. So too would privatizing government-owned companies – something done by B.C., Alberta, and the federal government decades ago. Such actions would signal Saskatchewan is even more open for business.
In Alberta, in the next four years, the provincial government is betting that a 20 per cent rise in corporate taxes, a 50 per rise in the minimum wage, and a 50 per cent rise in the top marginal personal income tax rate won’t affect jobs or prosperity. Other western provinces might want to lay a contrary bet of their own.
Mark Milke is a Senior Fellow with the Fraser Institute and author of Go West Young Adults: The 10-Year Western Boom in Investment, Jobs and Incomes.