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Once-Competitive Alberta Falls Behind Canadian, US States

by Mike Godfrey,, Washington

06 January 2017

Alberta has lost its "tax advantage" against Canada's other provinces and peer energy jurisdictions in the US, according to research by the Fraser Institute.

In a new paper, the think tank examined the extent to which the tax reforms introduced in Alberta have damaged its tax advantage relative to comparable jurisdictions.

It focused on three areas of tax policy that the Institute said have historically composed the main pillars of the province's tax advantage: personal income taxes, corporate income taxes, and sales taxes. Until recently, Alberta possessed a single-rate personal income tax rate of 10 percent and Canada's lowest corporate tax rate. Alberta does not apply a provincial sales tax.

The report concluded that the advantage had been undermined or completely erased in the case of both personal and corporate income taxes.

The Institute said that, prior to the changes, Alberta had the lowest corporate tax rate in Canada. In 2015, the newly elected Government increased the rate from 10 percent to 12 percent.

The provincial corporate tax rate is now higher than those levied in British Columbia and Ontario, and similar to those in Saskatchewan, Manitoba, and Quebec. According to the Institute, on this front, Alberta can now be considered "middle of the pack" within Canada.

The Institute also observed that in 2014, Alberta had the lowest combined federal-provincial/state individual tax rate out of 60 Canadian provinces and American states. In 2015, the Government introduced a five bracket income tax system with a top statutory rate of 15 percent.

In terms of its relative tax competitiveness, Alberta has dropped 14 places, and its top income tax rate is now 46th least competitive. "Comparing the marginal personal income tax rate at four different income levels reveals that Alberta no longer has a distinct tax advantage in any of those levels examined," the Institute added.

The Institute did nevertheless note that Alberta retains one advantage in the Canadian context: it is the only province not to apply a provincial sales tax. On the other hand, it said that Alberta does not necessarily enjoy an advantage relative to American energy jurisdictions as there are several states with neither a federal nor a state-level sales tax.

The Institute calculated that, during the period of the "tax advantage," the province economically outperformed the rest of Canada and most peer jurisdictions. It said that, at 3.3 percent, Alberta's real GDP growth rate between 2001 and 2014 was higher than all other Canadian provinces and the US energy states, with the exception of North Dakota. The report argued that the Albertan Government had a range of other options for reducing the province's debt, including reducing and reforming provincial expenditures, that would have preserved Alberta's tax advantage.

TAGS: tax | value added tax (VAT) | sales tax | energy | corporation tax | goods and services tax (GST) | tax thresholds | tax rates | Canada | tax reform | individual income tax | services

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