A new fact sheet released this morning by the Parkland Institute in response to the 2014 Alberta Budget says that the Alberta government has missed an opportunity to address a significant roadblock to improved health, happiness, prosperity, and overall well-being for the province.
The fact sheet, written by public finance economist Greg Flanagan and research director Shannon Stunden Bower, is titled The Way Forward: Progressive income tax in Alberta.
In 1999, they point out, Alberta’s Gini coefficient (a standard measure of income inequality) was high, but below the national average. By 2011, however, Alberta’s Gini coefficient had increased dramatically to be by far the highest in the country.
Flanagan and Stunden Bower attribute this growth in inequality in part to the introduction in 2000 of Alberta’s 10% single-rate income tax, the so-called flat tax. “The single-rate tax accomplished two things,” says Flanagan. “It significantly reduced government revenues and it contributed to greater income inequality.”
Using Statistics Canada data, the authors show that Albertans making less than $75,000 per year saw their share of the provincial income tax burden increase by 4.6% with the implementation of the flat tax, while those earning more than $75,000 enjoyed a 4.6% reduction in their contribution.
The authors also show that for most Albertans it is simply not true to assert that they pay the lowest income taxes in the country. The reality is that anyone who makes between $25,000 and $150,000 a year would pay lower income taxes in at least one other province. In essence, the Alberta flat tax gives tax breaks to those who need them the least and leaves middle income earners to cover the bill.
“In shifting the provincial income tax burden away from the well-off and toward those with more modest incomes, the Government of Alberta made life harder for many Albertans struggling to pay their bills,” says Stunden Bower. “The resulting stress on individuals and families is one of the ways that income inequality hampers the well-being of Albertans.”
The authors conclude that addressing income inequality must begin by eliminating the flat tax. A progressive income tax system would not only address inequality, but also present an opportunity to move toward adequate and stable provincial revenues—something Budget 2014 shows is desperately needed in this province.
The Parkland Institute is a non-partisan public policy research institute in the Faculty of Arts at the University of Alberta. The publication The Way Forward is available for download on the institute’s website at http://parklandinstitute.ca.