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Some good things
To be fair, the Prentice government has taken some significant steps in the right direction and those steps clearly acknowledge that Alberta needs more revenue.As I wrote previously here and in a piece I wrote for the Edmonton Journal, it seems just a tad off when, after losing seven or eight billion dollars in oil revenue, people in our province still limit our budget woes to the proverbial “we have an expense problem.”
If I lose my job and the revenue with it, I have a pretty big revenue problem. Sure, I will have to cut back where I can, but if I lose all my revenue is it possible to cut out all of my expenses? I still need to live somewhere, eat food clothe my family, and I need some resources to look for work. I will use my savings, if I have any, to get through my struggles, but I can’t imagine reducing my dilemma to just being an expense problem.
Sharing in the Alberta Advantage
Like everywhere else, we are a province that consists of the “haves” and the “have-nots” or at least the “have-not-enough-to-live adequately.” This is not a criticism of wealth or the wealthy. We actually need a spread across the income ladder to ensure we have a healthy, growing economy, but the question is to what extent should most of the money reside with one-percent of the population?
This may seem like a radical idea – though for some it seems more like a just idea – but don’t you think our economy, which affects all of us, should work well for the majority? And in a capitalist society – which means some win and some lose – I suggest a major responsibility of government is to level out the playing field to ensure we don’t accept an inhumane economy as the status quo.
Health Care Levy – a good move
The Prentice government’s budget made some moves in this direction. For example, the reintroduction of health care premiums (call it a levy or a tax, it matters not) has been done in a progressive way, meaning that those who make less pay nothing or less than those who are doing quite well. The chart below (reproduced from a Province of Alberta chart) indicates how fees will impact those with different incomes.
Let’s put this in perspective. Those making $70,000 per year will pay .00285% of their taxable income on health care premiums. If you make $110,000 you will pay .0054% and if you make $130,000 you will pay .0076%. Yes, it’s a progressive tax which means higher income earners pay more, but the percentage of taxable income paid is relatively insignificant.
However, things become far less progressive for those making $250,000 per year. They pay a health care levy equivalent to .004%, less of a percentage than those making $110,000 per year. One has to wonder why the rates did not go up further for earners in that income bracket. Income tax went up for that income group. Why not for the health care levy?
These revenues will bring in far less than the old way of collecting health care premiums, over a billion less by my estimates, but I affirm the Premier’s decision to invoke a progressive “tax” on health care. Do I agree with the critics who say the additional revenues won’t improve health care? To a large extent I do, especially given there are modest cuts in the budget to health care (0.8%). I think the Premier needs to figure out how to decrease wait times for critical services, but I am pretty convinced he won’t do that by continuing to provide it sans health care premiums.
How the levy is structured, however, makes it clear that the Province does not want employers to pay for health care premiums. In the former schema, employers often paid health care premiums as part of an employee’s overall benefits plan. This can’t happen now, at least not simply.
Breaking free of the Flat Tax Dogma
The Premier’s decision to break the flat personal income tax dogma that has been with us for years is another example of recognizing the need for a progressive income tax. While the health care levy begins July 1, 2015, the changes in the flat tax do not come into effect until January 1, 2016, which will have no impact on this year’s revenues. I am not sure why the wait is necessary, given our significant revenue problem.
That said, here is how the personal income tax rates will go in the future.
- For those making $100,000 or less in taxable income, the flat tax of 10% has not changed.
- Those who make between $100,000 and $250,000 will see their tax rate rise .5% in each of the following three years and leveling off at 11.5% from there on.
- Those who make more than $250,000 will see their tax rate increase to 11% in 2016, 11.5% in 2017, and 12% in 2018, and then fall back to 11.5% in 2019.
If you make $100,000 in taxable income, your tax paid will rise from $10,000 to $10,500 in 2016, leaving you $89,500 in taxable income (before federal income tax). If you make $250,000 in taxable income, your tax paid will rise from $25,000 to $27,500 (before federal tax), leaving you $197,500 – still a pretty good position to be in from where I sit, especially if one remembers that often those who make more have more access to tax breaks (or so it seems) that decrease one’s taxable income.
Sin taxes make sense, except for fuel
I think the Premier made the right move in increasing taxes to cigarettes and liquor, but I am less impressed with the additional tax on fuel, given that it will hurt lower-income people more than higher income folks as a general rule.
More support for low-income Albertans is good news
Actions have been taken elsewhere to better support low-income families. Without getting into the details, the Alberta Family Employment Tax Credit (AFETC) will increase benefits to low and middle-income Albertans by $25 million and the Alberta Working Family Supplement (AWFS) will provide $85 million in benefits to 75,000 working families. This is the right thing to do for those struggling in an economy that all too often pays low wages in order to grow profits. Unfortunately the positive impact on low-income families will not take place for 15 months.
It is encouraging to see the Province increase its support of seniors housing operating funding through the Alberta Social Housing Corporation by $5 million, which is nearly a 7% increase.
Less support for those with housing challenges – not a good idea
That said, the budget seems to contradict the government’s sensitivity to low-income Albertans in the programs above by cutting back as follows:
- A decrease of $1.1 million in government support of addressing homelessness
- A decrease in rent supplements by $1.4 million in a housing market still experiencing very high rents.
- A deep cut to operating funding for family and community housing from $77 million to $49 million, a rollback of just over 23%.
Human Services funding to remain flat?
While it appears there will be no cuts to human service programs funded by the government, this remains to be seen as departments announce funding to community agencies over the next month or so.
If there was a place for the Province to increase funding significantly it was in the area of housing low-income families and with respect to getting more homeless people off of the street and into decent accommodation. While it is true that little gains were made last year in the homeless count, the number of homeless people is tied to the economy and other factors like mental illness, addictions, inter-generational trauma. Housing First programs – and others that end homelessness – work well and make more economic sense that paying for homelessness.
Oil Royalties – when will we look at that? Oil royalties are a source of revenue for the Province and for all of us, given that the natural resource is an Alberta resource. While not likely the time to raise royalties, I think the government cannot continue with the current oil royalty schema. Our share of the pie has decreased over the years and at the very least we need to ask ourselves what our fair share of oil revenues should be going forward. But this is a complex topic for another time, another posting.
No corporate tax increases – Why?
Many are disappointed – and I am one – that sharing in the tax increases did not extend to the corporate sector. In the best economy of the Canada – or at least we were – the absence of even a marginal increase in corporate taxes suggests a lack of equity in sharing the revenue problem we all face. Even a .5% increase to 10.5% would still have Alberta having the lowest corporate tax and would have sent a message to every day Albertans that they alone do not have to carry the burden.
Leaving corporate taxes untouched and the decision to now bring in a provincial sales tax are measures meant no doubt to avoid a further drag on the economy at this time, and while I do understand the sentiment, I wonder how we can express such worry about the introduction of higher corporate taxes and a sales tax when we consider the graph further down on this page.
Just how much lower taxed must we be?
Historically, our government has been timid at best about raising taxes and fees because having low taxes — indeed the lowest taxes in Canada — is a long-standing mantra in our province. In fact our province has been so fixated on being the lowest taxed land in the country that I fear we have become somewhat oblivious (if being “somewhat” oblivious is possible) about living in the real world.
Consider the following:
The next lowest taxed province after Alberta is British Columbia and in that province taxes overall are about $12 billion more than in Alberta – that’s $12,000,000,000! This means that Alberta could raise taxes by $6 billion and still be by far the lowest taxed province in Canada.
Sales tax – what’s the real impact?
Voices against introducing a sales tax cite how it would hurt our provincial economy. Perhaps a better way of saying this is that the Alberta Advantage would not be as great as elsewhere. That’s another lens to look through, I suggest. While I have difficulties with a sales tax in that it negatively impacts low-income families far greater than those with ample discretionary income, I think that could be addressed through tax credit at income tax time.
Can provinces with higher taxes have strong economies?
That said, our belief that low taxes and the absence of a sales tax equates to a better economy is challenged by the following graph, brought to us by the Conference Board of Canada.
This chart reinforces that Alberta is faring far better than most other provinces and other countries for that matter, based on an elaborate scorecard produced by the Conference Board of Canada (take a look). Lower taxes as in British Columbia don’t necessarily equate to a strong economy. Wages and the cost of living plays their roles of course.
Saskatchewan and Newfoundland and Labrador also get A+ rankings for their economies and total taxes there are $12.5 billion and $15 billion more, respectively. If there economies can thrive despite having a sales tax, could ours?
Final words (for now)
Let’s get real about what it takes to balance our budget. Clearly more diversity in our economy is in order and most likely we need to do better in terms of getting our share of oil revenues in the future. A more progressive way of taxing incomes and collecting health care premiums makes sense. The more we benefit from the Alberta Advantage, the more we should support it. Our economy – in fact all economies – should work for the majority, not primarily those who benefit from it.
We need an economy that is accompanied by humane and just social policies. I am disappointed that the Province is apparently giving up on ending child poverty and it appears the progressive Social Policy Framework developed under Dave Hancock is now a historical outline of what could be.
There is a good balance in this budget overall, especially as an introduction to changes that will have to occur from this point on. There’s more to do and further to do, however. I have a feeling that our Premier knows this.
For more views about the budget: