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Alberta government may consider bringing back flat tax system ended by Notley NDP: Kenney


‘I think it was responsible for a huge amount of tax shifting to Alberta as people moved here to benefit from by far the most marginal income tax rates in the country’

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Alberta Premier Jason Kenney says the provincial government might consider returning to a flat tax system, which would see every Albertan, regardless of income, paying the same rate of provincial tax.

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In response to a question about revenues during a meeting Wednesday with the National Post’s editorial  board, Kenney, who was joined by Finance Minister Travis Toews, said he believed the flat tax system had been beneficial to Alberta.

“We used to have a single-rate personal income tax system here … and I think it was responsible for a huge amount of tax shifting to Alberta as people moved here to benefit from by far the most marginal income tax rates in the country,” said Kenney. “That’s one of the things that we will be looking at.”

The United Conservatives have long promised to hold a panel to study Alberta’s revenue, the counter to the September 2019 report into the province’s expenditures, which Toews said will happen, though no timeline was given.

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“Certainly, considering revenues is part of the process of putting the province on the sustainable fiscal trajectory,” said Toews.

The mandate of the panel, said Kenney, would be: “What would be the optimal design for a provincial tax system to promote economic growth and job creation?”

Because government revenues are tied so tightly to resource revenues, consecutive Alberta governments have had to deal with the vagaries of the international oil market. It has led, at various times, to calls for the province to institute a sales tax or find other ways to ensure a less volatile revenue stream. Alberta has a law setting out that a sales tax would be adopted via referendum, Kenney said.

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“So, with about three-quarters of Albertans pretty consistently opposed to the idea of a sales tax, I don’t think that is something Albertans are going to embrace,” he said.

Alberta had a flat tax system between 2001 and 2015. As of the 2016 tax year, Albertans with incomes less than $131,220 pay 10 per cent income tax — the former flat rate — and that then creeps upwards to 15 per cent for those making $314,928.01 or more.

The new tax rate was announced by Jim Prentice, the last Progressive Conservative premier, in 2015; less than two months later, Albertans dumped Prentice, and Rachel Notley’s New Democrats took over. They kept the promised progressive income tax system, which remains in effect now.

The United Conservatives have been seized with the issue of returning to a flat tax for years, but the province’s finances, walloped as they have been by the collapse in oil prices, the lingering economic downturn and the dampening effects of the COVID-19 pandemic, have kept it from being a viable option, even as the government moved to slash corporate tax rates.

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A study from the Fraser Institute, a free-market think tank, suggests that if the rates were brought down from 15 per cent to 10 per cent over four years, the government would lose roughly $1.36 billion in revenue. Yet, economic benefits — such as increased entrepreneurship or investment — could make these losses “relatively modest.”

Lindsay Tedds, an economist at the University of Calgary, pointed out that Alberta’s never actually had a flat tax, because there’s no tax on the first $19,369. “I hate being pedantic,” she said, laughing.

The effects of a return to a flat tax rate, Tedds said, would be complicated to disentangle, because there are so many other factors. While it would certainly see the government lose money, and shift the tax burden to middle-income, rather than high-income, earners, there are other factors to consider, such as daycare, that could affect workforce participation and economic activity. Plus, the effect of lost revenue on government services needs to be considered, Tedds said.

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“(Alberta) doesn’t just compete on taxes. It’s a bundle of goods and services that attract people to a jurisdiction,” Tedds said. “Are you making assumptions based off of your understanding of the world from the 1970s or 1980s? Or are you really understanding it from 2021?”

At the UCP’s May 2018 convention, the party’s membership voted in favour of adding a promise to return to the flat tax to the party’s policy book, but Kenney, who cited large deficits left by Notley’s government, never fully embraced the commitment.

Yet, this isn’t the first time the premier has hinted that the flat-tax system could return; he has expressed admiration for the flat tax, brought in under Ralph Klein, and suggested a panel could recommend such a thing, but has long demurred on cutting personal income tax rates.

“I think it was a critical part of the Alberta advantage,” Kenney said in 2019. “I like it in principle but I can’t commit to something when we don’t know what the overall fiscal situation will be of a future government.”

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Compared to the rest of Canada, Alberta already has a considerable tax advantage, which led to the premier suggesting everyone ought to move to Alberta. Albertans pay far less tax — income, and sales to name but two — compared to other provinces.

“The cost of living differential between Calgary, Alberta cities and Vancouver or Toronto is now so extreme that we really think it’s going to start — it is starting — to generate a new wave of interprovincial migration to Alberta,” Kenney said.

A dual-income couple with two kids in Alberta pays on average $1,064 less than the same family in British Columbia, $6,043 less than a Quebec family and $3,687 less than an Ontario family.

• Email: tdawson@postmedia.com | Twitter:

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