By Niels Veldhuis
and Fred McMahon
The Fraser Institute
Until recently, Alberta was the most economically free jurisdiction in North America. High levels of economic freedom fostered prosperity and growth, helping make Alberta one of the most affluent jurisdictions on the continent. However, the Alberta government recently implemented a series of policy changes that will leave Albertans materially less free. Given the clear link between economic freedom and prosperity, expect these changes to have negative and long-term effects on living standards and economic opportunities across the province.
The Fraser Institute recently released its annual Economic Freedom of North America report, which compares economic freedom in the Canadian provinces, American states, and Mexico. The report relied on the most recent data that can be compared across all jurisdictions, which is from 2013. Alberta was, at that time, the continent’s most economically free jurisdiction due to a single rate income tax, a moderate corporate income tax, no sales tax and a growth-oriented regulatory framework that left Albertans largely free to pursue their own interests without facing heavy-handed regulations or confiscatory taxation. (Neighbouring British Columbia and Saskatchewan ranked second and third place respectively, while Ontario ranked in the middle of the pack among Canadian provinces.)
The same policies that made Alberta the most economically free jurisdiction in North America also helped make it one of the most prosperous. Robust evidence shows a strong relationship between economic freedom and prosperity. Jurisdictions that provide moderate taxation, limited government, and flexible labour markets tend to be the most economically successful.
For example, in 2014, Alberta’s personal income per capita was C$58,128, approximately 15.6 percent higher than the North American (Canada and U.S.) average of C$50,264.
However, much has changed since 2013. The Alberta government announced a slew of policy and regulatory changes which, collectively, have made Albertans much less economically free.
For example, in 2015 the Notley government abandoned its pro-growth single personal income tax rate in favour of a multi-bracket system, increasing the top rate by 50 percent in the process. This income tax hike was accompanied by a 20 percent increase in the general business tax rate.
Furthermore, the Notley government announced a new carbon tax that will further increase the tax burden on Albertan consumers and businesses. Taken together, these tax increases mean Albertans will keep less of the money they earn, leading to less economic freedom.
In addition to raising taxes, Alberta’s provincial government announced it will increase the minimum wage by 47 percent, reducing the opportunities available to young and inexperienced workers seeking employment.
Many of these changes are significant individually but, taken together, they represent a freedom-restricting transformation in Alberta’s policy framework.
As a result of this transformation, there’s little question that Alberta’s economic freedom and its ranking within North America will decline. While these policy changes are too recent to have informed this year’s report, once they are integrated into future rankings, Alberta will fall from its long-held top spot.
As recently as 2013, Alberta was North America’s most economically free jurisdiction. Not coincidentally, it was also one of the most prosperous. In the space of just one year, a policy framework that promoted more freedom and prosperity has been fundamentally altered in ways that will almost certainly produce less of both in the years ahead.
Niels Veldhuis, Ben Eisen and Fred McMahon are analysts with the Fraser Institute. Economic Freedom of North America