Federal and provincial tax hikes bad news for Alberta

Tax hikes are coming fast and furious from both Edmonton and Ottawa, more bad news for Albertans and their still-fragile provincial economy

By Ben Eisen
and Charles Lammam
The Fraser Institute

VANCOUVER, B.C. Oct. 23, 2016/ Troy Media/ – Prime Minister Justin Trudeau recently announced that all provinces must soon adopt a price on carbon of $50 per tonne. The federal plan would likely require a further tax hike on top of the $30 per tonne carbon tax that’s already been announced by the Alberta government.

Historically, Alberta‘s economy benefitted from a comparatively moderate overall tax burden and competitive rates on key taxes.

Ben Eisen

But the one-two punch of growth-stunting tax hikes from both levels of government comes at the worst time, as the province struggles with external economic shocks stemming from depressed commodity prices for oil and gas, tepid global growth, and wildfire destruction.

For example, the carbon tax. The Notley government has already announced the creation of a carbon tax that will go into effect next year and will rise to $30 per tonne in 2018. But to meet Trudeau’s $50 per tonne target by 2022, Alberta’s provincial carbon tax must likely increase another $20 per tonne.

Charles Lammam

Of course, raising Alberta’s carbon price to satisfy federal rules need not necessarily mean an increase in the overall tax burden on Albertans. The province could theoretically reduce other taxes to offset the effective tax on carbon. Economists refer to this as a “revenue-neutral” approach, and some argue it can actually enhance growth if the most economically harmful taxes are cut.

However, given that the province [popup url=”http://www.troymedia.wpmudev.host/2015/11/29/albertas-new-carbon-tax-anything-but-revenue-neutral/” height=”1000″ width=”1200″ scrollbars=”1″]spectacularly failed[/popup] to adhere to revenue-neutrality in its initial climate change plan, it would be naïve to assume Notley’s government would enact the tax cuts needed to make the federally-mandated increase revenue neutral.

In the end, Albertans will likely be hit with two tax hikes – one resulting from the provincial government’s creation of a carbon tax, and the other from the federal government’s requirement to increase that tax. Double whammy.

On personal income taxes, Albertans have also been hit – twice – in recent months by provincial and federal tax hikes.

Consider that last year Alberta introduced four new provincial tax brackets for personal income, raising the top rate from 10 per cent to 15 per cent. Almost simultaneously, the federal government introduced a personal income tax hike of its own, raising the top federal rate four percentage points. Due to the combined effect, Alberta’s top combined income tax rate shot from 39 per cent to 48 per cent in a single year.

High personal income taxes discourage people from working, investing, and being entrepreneurial – activities at the core of a thriving economy. The twin personal income tax hikes from the federal and provincial governments are therefore bad news for Alberta’s growth prospects.

Moreover, the provincial government has raised corporate income taxes and excise taxes on products such as alcohol and gasoline over the past few years. The federal government is also planning on increasing payroll taxes to fund its expansion of the Canada Pension Plan.

Tax hikes are coming fast and furious from both Edmonton and Ottawa and this flurry is bad news for Albertans and their still-fragile provincial economy.

Ben Eisen and Charles Lammam are analysts with the Fraser Institute.

Ben and Charles are Troy Media [popup url=”http://marketplace.troymedia.wpmudev.host/our-contributors/” height=”1000″ width=”1000″ scrollbars=”1″]contributors[/popup]. [popup url=”http://www.troymedia.wpmudev.host/become-a-troy-media-contributor/” height=”600″ width=”600″ scrollbars=”1″] Why aren’t you?[/popup]

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