Alberta losing its tax edge
Province on 'spending spree,' says lobbyist

Michelle Lang and Abdul Rafih
Calgary Herald

Shrinking Advantage

Alberta still boasts the lowest provincial taxes, but other provinces are catching up:

Family of 4 - Family of 4 - Single

Income - $90K - $60K - $25K

Alberta - $8,313 - $5,517 - $1,380
B.C. - 8,598 - 6,043 - 1,517
Sask. - 10,703 - 6,954 - 2,004
Man. - 14,992 - 9,351 - 2,240
Ont. - 11,828 - 7,519 - 2,211
Que. - 16,052 - 8,576 - 3,029
N.B. - 11,351 - 6,649 - 2,166
N.S. - 11,366 - 7,305 - 2,111
P.E.I. - 10,791 - 7,045 - 2,311
Nfld. -13,467 - 8,777 -2,855

April 12, 2005

Premier Ralph Klein unveils the country's first debt-free budget in decades on Wednesday, but his reluctance to slash income taxes is helping other provinces shrink the much-touted Alberta Advantage, warn economists and lobby groups.

The province hasn't significantly reduced personal taxes since 2001, and although most Albertans enjoy the lowest rates in Canada, other jurisdictions are narrowing the gap with more recent cuts.

"Alberta politicians are on a big spending spree," said John Carpay of the Canadian Taxpayers Federation. "They could easily cut taxes, but they haven't, because they really enjoy spending our money."

Calls for tax cuts follow the premier's weekend comment that Alberta's upcoming budget won't contain significant tax relief, even though the province effectively paid off its debt last month.

Instead, the budget will focus on spending in several areas, including post-secondary education, infrastructure and policing.

Meanwhile, other provinces have reduced taxes in their 2005 budgets.

For example, Manitoba's budget last month boasted of an $80-million annual savings with new personal income and property tax cuts, while British Columbia introduced a personal income tax credit in its February budget.

"They're moving in the right direction towards you guys and they're narrowing the gap, to some extent," said Niels Veldhuis, a senior research economist at the Fraser Institute.

In Alberta, taxpayer groups and some Calgary families say the government should use its debt-free status -- and the billions in petrodollars that will pour into coffers this year -- to cement its status as Canada's low-tax haven.

"We've eliminated the debt in this province and yet we continue paying these high tax rates," said Basita Nasouh, a mother of four whose husband owns a local carpet-cleaning business and earns about $40,000 a year.

For Nasouh's large family, the child tax credit in Ontario would lower their personal income tax bill by about $573.

Indeed, Albertans in some income brackets would do better in other jurisdictions.

B.C. figures indicate, for instance, the average single person making $25,000 annually will pay less in personal income taxes this year -- $737 -- than in Alberta, where they'd fork out about $20 more.

That said, Alberta can still, in most cases, boast the best personal income tax regime in Canada.

This province's flat personal tax rate of 10 per cent, regardless of income, compares favourably to rates that range as high as 25 per cent in Quebec, according to the Canadian Taxpayers Federation.

In addition, Alberta has higher personal tax exemptions and lower health-care premiums than some other provinces. And it has no provincial sales tax.

Taking those factors into account, a typical family of four with two incomes earning a total of $60,000 a year would pay only $5,517 in Alberta taxes. That is $526 less than in the next lowest province, B.C.

What concerns taxpayer advocates, however, is Alberta's sizeable spending increases and the tax cuts in other provinces.

Alberta has boosted its spending by nearly 30 per cent, or $5.5 billion, since the 2000-01 fiscal year.

"That's why we're not getting lower taxes," argues Carpay.

Now that Alberta is debt free, observers say it should begin looking to the United States to increase its competitiveness in Canada and internationally.

"Alberta needs to continue setting the trend for the next 10 or 20 years," said Veldhuis.

mlang@theherald.canwest.com

Debt-free Alberta budget boasts $1.5-billion surplus, major spending increases

1 hour, 54 minutes ago

LORRAINE TURCHANSKY

EDMONTON (CP) - With a record increase in spending on higher education, Wednesday's budget served notice that knowledge is key to the Klein government's vision of life in a post-debt Alberta.

In what she called an "investment budget," Finance Minister Shirley McClellan outlined $25.5 billion in program spending, up nearly six per cent from last year's spending. With revenues for 2005-06 projected at $27.3 billion, the government still expects to rack up at least a $1.5-billion surplus.

One of the heftiest spending increases will go to the province's colleges, universities and technical institutes. They'll get $1.6 billion, up $196 million or 13.4 per cent from last year, including money aimed at creating 15,000 new spaces over three years.

"With those new spaces, stories about young people coming out of high school with high averages and no place to go will come to an end," McClellan told the legislature.

"There will be a place for everyone who aspires to advanced education - that's our promise and our commitment to every young Albertan."

Harvey Weingarten, president of the University of Calgary, was clearly delighted.

"It will make a huge difference in the number of spots we have, in the quality of educational experience we can offer students, also in how affordable post-secondary education is," he said. "All those things are good."

A previously announced $3-billion endowment fund for post-secondary education will be started this year with an initial $250-million contribution. That will translate into an $11-million payout next year, which Liberal Opposition Leader Kevin Taft called a "huge disappointment."

"The $3 billion promised seems like a lot of smoke and mirrors, and we may never see that funding," said Taft, whose Liberals used an advanced education endowment fund as a major campaign plank in last fall's election.

"There's no long-term commitment to the endowment fund or fiscal planning at all."

The centennial-year budget is Alberta's 12th consecutive balanced budget and the first in 18 years to include no debt.

"We have the best fiscal position in Canada, we have an economy that leads the nation and we have no accumulated debt," McClellan said outside the house. "What a wonderful way to start your second century."

In kindergarten-to-Grade 12 education, the government promised an extra $287 million, or 7.1 per cent increase, much of which will go to reducing class sizes by hiring another 435 teachers for September.

The biggest increase came in health spending, which is projected to reach nearly $9 billion this year. Over half of that will go to give regional health authorities an 11.3 per raise for their operations.

Both Edmonton and Calgary will get new $500-million health-care centres as part of a three-year, $9-billion capital spending plan. More than $1 billion will go to municipalities this year to help them finance roads, sewers and other projects.

There's also money to hire 190 more police and court security officers in what the government called the largest single-year increase in police officers in 20 years.

The budget offered little in the way of tax cuts. But a family employment tax credit is being increased slightly and extended to cover third and fourth children. A family with four kids and income of $40,000 will get an $850 tax credit, up from $400.

The school property tax rate is being cut by five per cent, but officials said the growth in assessment values means the average provincial homeowner will actually pay $20 more. Seniors, however, will get a rebate to cover some of the property tax increases and will also be exempt from paying health-care premiums.

Living allowances for the disabled, currently limited to $850 a month, are also scheduled to rise, with details to be released Friday.

The oil-rich province may find even more money to spread around later in the year. In 2004-05, soaring energy prices pushed Alberta's surplus to $4.3 billion, more than 10 times what had been forecast in the spring budget.

This year, McClellan's projected energy revenues are based on an average oil price of $42 US for the benchmark West Texas Intermediate and an average natural gas price of $5.60 per gigajoule. On Wednesday, oil was trading at $52 US, well above her estimate.

Each $1 rise in the oil price or 10-cent rise in the gas price brings another $99 million into provincial government coffers. McClellan insisted that pegging her energy price estimates lower than those of many private forecasters was the only prudent approach.

If energy revenues continue to pump up the surplus, the government will decide quarter by quarter what to do with the extra money. McClellan said the obvious choices would be capital projects, various education and research endowment funds, the rainy-day sustainability fund or the heritage savings and trust fund.

The minister made no apologies for the unprecedented spending, describing it as "appropriate to deliver the services that people in this province have asked us for."

As for tax cuts, she noted the government's survey of Albertans last year found such a move ranked well behind health, education and capital spending on respondents' wish lists.

"We've reduced taxes significantly over the last six years. If we taxed at the level of the next closest province to us, we would have an additional $7 billion in revenue," she said.

"We were told we should address the concerns of lower-and middle-income families, and we did that."

But John Carpay of the Canadian Taxpayers Federation said Albertans should be reaping much more benefit from their new debt freedom through tax cuts.

"These provincial Tories are spending on a scale that would make the federal Liberals blush," he said. "In fact, the federal Liberals are proposing more tax relief than the provincial Tories are."

NDP Leader Brian Mason said he would have liked to see elimination of health-care premiums, more funding for hospital projects, and fulfilment of a promise to fund full-day kindergarten.

"If you can't get a bed in a hospital, this budget won't help you," he said. "But it does help, for example, their friends in the horse-racing industry - they get a $45-million subsidy."

Business group urges cut in B.C. sales tax

Fiona Anderson
Vancouver Sun

Friday, May 27, 2005

The B.C. Chamber of Commerce is calling on the provincial government to slash sales tax to 4.5 per cent in a bid to drive the economy forward and to thwart competition from Alberta.

"There is real value in leaving money in consumers' pockets and that spurs economic activity in communities around the province," Chamber president and CEO John Winter said in an interview Thursday.

A tax reduction would enable businesses, especially retailers of large items such as cars and appliances in northeastern B.C., to compete with their Alberta counterparts. Alberta is the only province in Canada that does not have a sales tax.

Reducing tax has been shown to work in the past to stimulate the economy, Winter said.

"By reducing the personal tax four years ago, it's been quite adequately demonstrated that tax cuts do work -- that they stimulated the economy," Winter said.

However, Jason Clemens, director of fiscal studies at the Fraser Institute, said lowering the sales tax is a "bad idea."

"Sales tax is probably one of the best taxes we have in British Columbia," Clemens said in an interview. "Sales taxes or consumption taxes in general are the most efficient way in which to collect tax revenues."

Winter believes increased spending caused by the tax cuts would make up for the decreased tax rate, leaving revenues intact.

"I don't think we would advocate reducing tax if it is going to have a negative impact on overall revenue," Winter said. "What we are really seeing as you increase taxes is a law of diminishing returns taking over, so people spend less. We saw evidence of that when the government went to [a] 7.5-per-cent [sales tax] two years ago."

As revenue would increase or remain the same, Winter said, social programs would not be affected.

Clemens takes a contrary view.

To raise $1 in corporate income tax costs the Canadian economy about $1.55, Clemens said, while raising $1 in sales tax costs only $0.17.

Increasing corporate income tax reduces the amount of money available for reinvestment, Clemens said. This means fewer jobs are created and wages are negatively affected. On the other hand, reducing the sales tax may increase personal savings but the effect on investment is small.

"I would actually support increasing the provincial sales tax in order to reduce these other more damaging taxes," Clemens said.

People crossing into Alberta to buy big ticket items are few and far between, Clemens said, and the tax system should not be set up to accommodate these few people.

Clemens thinks the real B.C. victims hurt by Alberta are businesses that buy high-priced machinery and other taxable goods.

The best way to solve that problem, Clemens said, would be to harmonize the sales tax with the GST so businesses could get input credits for tax paid on inputs.

The Chamber, which is having its annual general meeting this weekend, is also advocating that the small-business tax threshold be raised to $500,000 from $400,000, that the corporate capital tax on financial institutions be eliminated and that a training-tax-credit system be implemented so that employers can get reimbursed for training workers to overcome the shortage of skilled labour available in B.C.

The Chamber is made up of 130 organizations that represent 28,000 businesses in B.C.

CASH CALL:

The B.C. Chamber wants to reduce sales tax to 4.5%. Here's how we compare:

B.C. 7.0%

Alberta 0%

Sask. 6%

Manitoba 7%

Ontario 8%

Quebec 7.5%

N.B. 8%

Nova Scotia 8%

P.E.I. 10%

Nfld. 8%

Source: B.C.

GOVERNMENT'S BUDGET AND FISCAL PLAN:

Feb. 15, 2005

Talking points:

The B.C. Chamber of Commerce conducted an opinion poll of its representative members. Here are some of the key questions and responses:

- Do you think a training tax credit would be a useful tool to encourage business to provide and/or promote industry training?

Agree: 85%

Disagree: 7%

Unsure: 7%

Declined: 1%

- Should B.C. make it a priority to change the labour code to allow for replacement workers in the face of strikes?

Yes: 35%

No: 32%

Unsure: 27%

Declined: 6%

- Do you believe the provincial government has a coherent strategy for dealing with aboriginal claims that correctly weighs the interests of the aboriginal groups with those of the public and the business community?

Yes: 28%

No: 40%

Unsure: 27%

Declined: 4%

- Do you believe there is a role for private health care delivery within a publicly funded system?

Yes: 68%

No: 20%

Unsure: 10%

Declined: 2%

Ran with fact boxes "Government's Budget and Fiscal Plan"and "Cash Call", which have been appended to the end of the story.