Article content
Amid the ongoing tariff war, it’s more important than ever that the Alberta economy is competitive on all fronts — including taxes. Unfortunately, on personal income tax rates, Alberta is woefully uncompetitive compared to other energy-producing jurisdictions, including Texas.
Article content
As recently as 2014, Alberta had a single 10% personal income tax rate. As a result, it had the lowest top combined (federal and provincial/state) personal income tax rate in North America. Alberta also had a 10% business income tax rate, the lowest in North America. These rates, paired with no provincial sales tax, comprised the “Alberta Tax Advantage,” which made the province a very attractive place to start a business, work and invest.
After the election of the NDP government in 2015, however, Alberta lost much of its tax advantage. Specifically, the Notley government replaced the single personal income tax rate of 10% with a five-bracket system — including a top rate of 15% — and increased Alberta’s 10% business income tax rate to 12%. While the business tax increase has since been undone, the higher personal income tax rates remain. And tax changes at the federal level in both Canada (which raised federal personal income tax rates) and the U.S. (which reduced federal personal income tax rates) have further hurt Alberta’s tax competitiveness.
Article content
So, where does Alberta stand today?
Alberta is tied with Hawaii for the 10th-highest top combined (federal and provincial/state) personal income tax rate in North America at 48% — that’s higher than every other U.S. state except California, and significantly higher than energy-producing states including Alaska, Texas, Wyoming and North Dakota that compete with Alberta for investment and talent. Compared to Alaska, Texas and Wyoming, which have no state personal income tax, Alberta’s top personal income rate is 11.00 percentage points higher. And last year, Alberta’s top personal income tax rate kicked in at C$355,845 compared to C$834,688 in energy producing states including Texas.
Finally, Alberta is not just uncompetitive at upper-income levels but at various income levels — ranging from $50,000 to $350,000 — Albertans face higher tax rates than competing jurisdictions. For example, an Albertan with $50,000 in annual taxable income faces a combined personal income tax rate of 25% compared to 12% in Texas.
If the Smith government wants to improve its tax competitiveness, it should lower personal income tax rates to allow Albertans to keep more of their hard-earned money, help attract talent and investment to the province, and support strong economic growth.
Tegan Hill and Nathaniel Li are economists with the Fraser Institute.
Share this article in your social network
