Tade Haghverdian is an intern at the Alberta InstituteAlberta boasts many unique advantages — awe-inspiring mountain vistas, bountiful natural resources and a young, dynamic population among them. But there was only ever one double-uppercase “Alberta Advantage.”Beginning in the 1990s under Progressive Conservative premier Ralph Klein, Alberta marketed itself across Canada and around the world as a low-tax haven based on three key factors. First, it had no provincial sales tax. Second, it maintained the lowest corporate taxes in Canada. Third, instead of a productivity-killing progressive income tax, it levied a flat tax of 10 per cent on all earned income.This potent mix made Alberta an outlier in Canada and a magnet for investors and job seekers. At the peak of Alberta’s Advantage in the early 2000s, it had the lowest combined federal-provincial corporate and personal tax rates of any jurisdiction in North America. The economy boomed, the provincial debt disappeared, and Alberta often out-competed U.S. low-tax states like North Dakota and Texas for both capital and workers. .Today, much of that advantage has been squandered. So what can Alberta do to get its Advantage back?In the early 1990s, Klein inherited a fiscal mess from his free-spending predecessor, premier Don Getty. Klein’s government took dramatic action. Spending was cut by about $3,000 per person over four years to balance the budget. Then Klein set provincial treasurer Stockwell Day to work reforming the personal income tax system.“We believed that a single-rate tax would not only encourage productivity but would also put up guardrails to prevent government from over-expanding,” a retired Day recalls today in an interview from his home in Kelowna, B.C. “A progressive tax system is inherently anti-productive,” he says. “It discourages extra effort and innovation because people know that working harder or earning more means getting taxed at a higher rate.”.Day had firsthand experience with this effect. “When I was younger, I worked in a [meat] packing plant,” he says. “My colleagues would often refuse overtime because they believed the extra effort wasn’t worth it, as their overtime would just be taxed away at a higher rate” if the income bumped them into another bracket. “That always stuck with me. Why punish people who want to work harder?”On Jan. 1, 2001, Day’s flat-tax system took effect: a 10 percent tax on all personal income. The result was a remarkable period of growth that coincided with a boom in Alberta’s oil and gas sector. By 2006, Alberta’s jobless rate had fallen to 3.1 percent — the lowest in three decades.But Alberta’s low-tax crown didn’t last. After Klein stepped down in 2006, successive PC governments boosted spending well beyond inflation and population growth. When the oil boom ended, surpluses turned to deficits. Then the province turned to higher taxes..In 2015, Rachel Notley’s NDP won the election, ending 44 years of PC rule. Her government hiked corporate taxes and scrapped the flat tax, replacing it with a five-tier system that topped out at 48 percent, including federal taxes. RIP Alberta Advantage.The NDP also buried Alberta in red tape and regulation. In 2018, a global survey of petroleum executives showed Alberta’s attractiveness for energy investment had plummeted from 14th to 43rd worldwide.Alberta’s sales-tax-free status has also come under constant threat. Various economists and academics regularly argue the province should bring in a sales tax to fix its chronic overspending. The 2022 book A Sales Tax for Alberta: Why and How claims “without a provincial sales tax, Alberta is passing up $7 billion a year in stable, predictable revenue.”.Day says that’s the wrong approach. “Once you introduce a sales tax, you lose that unique edge,” he says. If Alberta adds a sales tax to its already growing mix of taxes and deficits, “we become just another jurisdiction.”The current UCP government has rolled back some of the NDP’s biggest mistakes. Corporate taxes have been cut again. The most recent budget lowers the personal rate on the first $60,000 of income. But that same budget also hikes education taxes and other fees. It runs a $5.2 billion deficit, with more red ink forecast through 2027 — a sign the government still isn’t prepared to live within its means.Getting Alberta’s edge back will take bold action — the kind that made it stand out in the Klein years. A 2023 Fraser Institute report found that an eight per cent flat income tax — matching the province’s corporate rate — would place Alberta among the 15 lowest-tax jurisdictions in North America. More importantly, it would show investors that Alberta is serious again about lean, pro-growth government.Alberta’s low-tax mojo may be bruised, but it’s not gone. By restoring a flat tax, resisting the lure of a sales tax, and controlling spending, the province can reclaim its title as Canada’s king of fiscal sanity and prosperity.Tade Haghverdian is an intern at the Alberta Institute. The original and longer version of this story appeared at C2CJournal.ca.
