Cutting Alberta’s Tax Rate to 8 Percent Would Save Families $1,500: Fraser Institute

Tax forms are shown in Toronto on April 5, 2018. The Canadian Press/Doug Ives

A flat 8 percent income tax rate would make Alberta more competitive and save residents over $1,500 a year, according to a report from the Fraser Institute. Lowering the tax rate is a promise that Premier Danielle Smith made to voters in the 2023 election.

However, residents were told in the 2024 budget that they’ll have to wait until 2026 to see a new income tax bracket for those earning up to $60,000. The new rate will be 9 percent. In 2027, it will be reduced to 8 percent, according to a government webpage.

Ten years ago, the province had a 10 percent flat income tax rate for businesses and individuals, the Fraser Institute report says.

“This was a powerful advantage that made Alberta an attractive place to start a business, work, and invest,” report authors Tegan Hill and Nathaniel Li said, noting that policies introduced by the NDP in 2015 complicated the tax system.

Alberta’s NDP introduced a five-bracket system, and increased the corporate and personal income tax rate to 12 percent.

The changes have resulted in Alberta having the 10th highest personal income tax rate in North America, Ms. Hill and Mr. Li said.

“Alberta is tied with Hawaii for the tenth highest top personal income tax rate in North America at 48.00 percent,” they wrote. “While it is lower than other Canadian provinces excluding Saskatchewan (47.50 percent), it is higher than every U.S. state excluding only California (50.30 percent).”

In 2020, then-premier Jason Kenney reduced the corporate tax rate to 8 percent, making it the lowest in Canada, the authors noted.

“The next logical step is to undo the personal income tax hikes and return to a single rate personal income tax system, this time at a lower rate of 8 percent to once again match the CIT rate,” the report says.

“If Alberta’s top [personal income tax] rate was reduced to 8.00 percent, it would be the lowest in Canada by 6.50 percentage points, and among the 15 lowest top combined PIT rates in North America at 41.00 percent.”

The authors said that the high tax rate hurts productivity in the province.

“With respect to the taxation of personal income, skilled workers are less incentivized to work in Alberta,” they said, explaining that the higher income individuals earn, the more taxes they’ll pay based on the current system.

“If the 5-bracket PIT system was returned to a single rate system at 8.00 percent, this disincentive would be reduced throughout the income distribution,” they wrote.

“Rolling back the 2015 personal income tax increases and implementing an eight per cent flat personal income tax rate would help restore Alberta’s tax competitiveness and keep more money in the pockets of Albertans,” Ms. Hill said.

In 2023, during the election campaign, Ms. Smith promised that if re-elected, her government would bring the tax rate for those earning $60,000 or less to 8 percent.

“This means every Albertan earning $60,000 or more will save $760 – over $1,500 per family,” a May 1, 2023 news release said. “Albertans earning less than $60,000 will see a 20% reduction to their provincial tax bill under this tax cut.”