HILL: Premier Smith should finally undo NDP hikes and help restore Alberta’s tax advantage

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During the election campaign, Danielle Smith promised to create a new 8% tax bracket for personal income below $60,000. While the Smith government’s 2024 budget delayed this tax cut, the premier recently said a “substantial” cut is coming soon. That’s good news, but Smith shouldn’t stop at introducing a new bottom rate. It’s time to finally undo the NDP tax hikes and restore Alberta’s tax advantage.

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As recently as 2014, Alberta had the lowest top combined (that is, provincial and federal) personal income tax (PIT) rate in North America. Paired with a low business income tax rate and no sales tax, Alberta had a powerful tax advantage that made the province a very attractive place to work and invest.

Back in 2015, however, the NDP government replaced Alberta’s single personal income tax rate of 10% with a five-bracket system including a top marginal rate of 15%.

Now Alberta has the 10th-highest combined PIT rate in North America. And crucially, we’re less competitive than key U.S. energy jurisdictions such as Texas, Wyoming, Oklahoma, Colorado, Louisiana, North Dakota and Alaska, which compete with Alberta for talent and investment.

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Again, Premier Smith plans to create a new 8% tax bracket for personal income below $60,000, which would be lower than the current bottom rate of 10%, and save Albertans earning $60,000 or more an estimated $760 annually. That’s an important first step. However, Alberta still has the higher income tax rates introduced by the NDP — 12%, 13%, 14% and the top rate of 15%.

To truly undo the NDP tax hikes, Smith should replace Alberta’s current multi-bracket PIT system with a single rate of 8%, which would be the lowest provincial rate in Canada and one of the lowest top combined PIT rates in North America. The change would help restore Alberta’s tax advantage while saving approximately 2.3 million Albertans $1,573 per year (on average).

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The tax change would also help boost the Albertan economy because high tax rates discourage economic growth by reducing after-tax income from work, savings, investment and entrepreneurship while lower tax rates help attract high-skilled workers and investment, which fuels innovation, job creation and strong economic growth, and ultimately higher incomes for Albertans.

Fortunately, this tax change may be more fiscally feasible than one might think. Based on 2023-24 data from the Smith government, replacing Alberta’s multi-bracket PIT system with a single rate of 8% would lead to an estimated revenue loss of $3.8 billion (or approximately 5% of total provincial government revenue that year). But after factoring in the positive effects of increased work, savings and investment, the amount of revenue lost could be significantly lower.

According to Premier Smith, Alberta’s long-awaited income tax cut is on its way — and that’s good news for Albertans. But to undo the NDP tax hikes and reap the benefits of tax reductions, Smith should go further and replace the current system with a single 8% rate.

Tegan Hill is director of Alberta policy at the Fraser Institute.

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