Will Alberta Lost its Tax Advantage?

Alberta historically has prided itself on its provincial tax advantage, and for good reason. With abundant natural resource revenues, the province has been able to leverage its advantage to attract capital and people in order to grow and diversify its economy. Low tax rates have also meant fewer disincentives for people to work and invest in Alberta than they face in other provinces. Alberta’s tax advantage, however, is diminishing as tax regimes in other provinces become more competitive. In part, this is good news for Alberta since tax reductions, both in other provinces and at the federal level, make Canada a more attractive place in which to do business, which, in turn, increases demand for Alberta’s goods and services. The bad news is that Alberta could lose its tax advantage altogether within a decade if its balanced-budget spending growth requires increased taxation. In this Communiqué, I suggest an approach that would maintain Alberta’s tax competitiveness: a rule limiting spending increases and a move toward a growth-maximizing, less volatile tax structure by shifting taxes away from investment and savings toward levies related to private and public consumption.