After governments abandon fiscal prudence, they will soon search for any and all ways to tax people more.
This is the reality playing out in Alberta, where Premier Jim Prentice has floated multiple tax increase trial balloons.
The premier, new to the office, is not responsible for jacking up program spending beyond what inflation and population growth would warrant over the past decade. Former premiers Ed Stelmach and Alison Redford must share that crown.
But Prentice is responsible if he now spends above what Albertans can afford and taxes them more to pay for it (rather than chop expenses, including the $22.5 billion in public sector compensation, which equates to nearly half of Alberta’s total expenditures).
For example, the premier has attacked Alberta’s 10 per cent single personal income tax rate, and hinted at new and higher tax brackets.
In a recent interview, he claimed that “as you study the Alberta tax system, it’s quite clear that for people who are the working poor, it is a system which bites them pretty hard, compared to the rest of the country.”
Actually, the premier is flat-out wrong − the exact opposite is true. Other provinces tax the poor more than Alberta, partly because of Alberta’s rather generous basic exemption.
In Alberta, someone who earns less than $17,787 pays no provincial personal income tax. And the 10 per cent tax rate applies only to income above that level.
In contrast, the poor in other provinces start paying provincial income tax after $7,708 in Prince Edward Island (the tiniest exemption) and after $15,378 in Saskatchewan (the next most generous province after Alberta). Other provinces are sandwiched in between.
The $17,787 Alberta exemption also means that critics who claim Alberta’s single tax is not progressive − that everyone, poor or wealthy, all pay the same proportion of their income in provincial income tax – are mistaken.
Let’s look at some simplified examples, which do not account for tax credits or deductions, but illustrate the point.
Earn $17,787 in Alberta and you’ll pay nothing in provincial income tax. Earn $50,000 and 6.4 per cent of your income is tax ($50,000 minus the $17,787 exemption; the 10 per cent tax is paid on the remaining $32,213). Earn $100,000 and 8.2 per cent of your income is tax. There’s a word for such sliding proportions of tax paid: progressive.
Or consider another analysis measuring the total provincial tax burden paid by the bottom 25 per cent of income earners. They provide 4.8 per cent of all taxes collected in Saskatchewan, 5.8 per cent in Ontario, and 5.9 per cent in British Columbia.
In Alberta, by comparison, the taxes paid by that bottom 25 per cent account for just 2.9 per cent of the province’s total tax revenues.
According to the author of this analysis, there are two ways to ensure poor Canadians pay a smaller proportion of their income (or of total taxes collected) than do wealthier taxpayers.
One way: multiple rates that tax high-income earners at higher levels. However, the author warns that this “may discourage high-income, highly skilled workers from moving to Alberta or staying here.”
Or the second way, what Alberta does: a high basic personal exemption from income tax.
Insofar as the argument is about the progressivity of Alberta’s system, the author of this analysis of Alberta’s single-rate system is correct.
And where does this laudable analysis come from? The provincial government’s very own Budget 2014. The provincial tax comparisons and discussion of progressivity can be found on page 120, in a section entitled “Alberta’s Progressive Tax System.”
Alberta’s Budget 2014 sums up Alberta’s progressive single-rate tax system this way: “When all taxes are considered, Alberta has a very progressive tax system that compares well with other provinces.”
Indeed. And Alberta Finance is correct and the Premier is mistaken. Alberta’s single-rate system serves Albertans well − including the very poor.
Mark Milke is a Senior Fellow at the Fraser Institute. He was author of a 1998 report to the Alberta Income Tax Review Committee calling for a single income tax rate.