Alberta has much to teach Ontario on budgeting

The Alberta government has not only set out a better direction on program spending, it also has a better plan on taxes

Matthew LauAlberta Premier Jason Kenney’s government delivered its first budget in October following the United Conservative Party’s victory over the NDP earlier this year. That budget sets a course Ontario should follow.

Kenny’s mandate from voters was similar to that of Ontario Premier Doug Ford: to reverse course on the previous administration’s overspending, deficits and tax hikes that damaged economic competitiveness.

Although their mandates are similar, Alberta’s fiscal plan so far is much more robust than Ontario’s.

The most relevant statistic to evaluate each government’s efforts in fiscal restraint is the annual change in program spending. By this measure, the Ontario government got off to a bad start last year, as spending rose from $142.4 billion in 2017-18 to $148.8 billion in 2018-19.

This fiscal year, the Ontario government’s program spending is projected to be $150.3 billion (according to the first-quarter outlook); and budgeted to rise to $151.9 billion next year and $153.8 billion in 2021-22. While these increases are lower than what the previous Liberal government planned, spending is still going in the wrong direction.

Ontario’s Conservatives could learn something about budgeting from their counterparts in Alberta. Alberta program spending is expected to be $54.6 billion this year (an increase from $54.5 billion last year), but the budget plans a decline to $53.1 billion in 2020-21 and to $53 billion in the following two years.

So in Ontario, program spending is expected to rise by $11.4 billion over the four years. In Alberta, program spending is expected to decline by $1.5 billion over the four years.

The two governments have similar mandates to deliver relief for taxpayers but clearly Alberta’s government is off to the better start.

The Alberta government has not only set out a better direction on program spending, it also has a better plan on taxes. The Alberta corporate tax rate has already been cut from 12 per cent to 11 per cent, and is expected to fall to eight per cent by 2022. By contrast, Ford campaigned on reducing Ontario corporate tax from 11.5 per cent to 10.5 per cent, but promptly abandoned even that modest promise once elected.

The economic benefits of cutting corporate taxes are significant. Since taxes discourage investment and economic production, every $1 raised by government through taxes costs the private sector more than $1. The cost to society of raising an additional $1 of revenues through provincial corporate taxes, according to a study in 2016 by fiscal economists Ergete Ferede and Bev Dahlby, is $2.91 in Alberta and $5.21 in Ontario.

These costs are borne in large part by workers, paid through reduced wages.

Another study by Kenneth J. McKenzie and Ferede in 2017 estimated that cutting corporate taxes by $1 would raise workers’ incomes by $1.52 in Alberta and $1.97 in Ontario.

Clearly, the Ontario government’s decision to abandon its corporate tax cut is costly for workers. Meanwhile, Alberta’s plan to cut corporate taxes is likely to increase employment by about 55,000 jobs, according to economist Jack Mintz.

If the Ontario government really intends to deliver relief from taxpayers and encourage economic growth, as it was elected to do, it should take lessons on both spending restraint and tax policy from the Alberta government.

Matthew Lau is a research associate with the Frontier Centre for Public Policy.

© Troy Media


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