Could Alberta afford to bring back the 10% flat tax rate?

A new study from the Fraser Institute suggests it could with a modest decrease in tax revenue

Could Alberta afford to bring back the 10% flat tax rate?
Steve Randall

It was six years ago that the Alberta government replaced the province’s 10% flat rate of income tax in favour of multiple tax bands and a 15% top rate.

But the province could afford to regain its tax advantage by reinstating the 10% flat rate according to a new report from the Fraser Institute.

Although it would mean a reduction in revenue, there should be other benefits that would help to offset the negatives.

The report, What Happens If Alberta Returns to the Flat Tax System? was written by  Ergete Ferede, professor of economics at MacEwan University, senior fellow at the Fraser Institute.

“If the Alberta government resurrected the 10% flat tax, the subsequent increase in economic activity, including increased entrepreneurship, more business startups and higher levels of investment, would help mitigate the relatively modest loss in tax revenue,” he said.

Based on current projections, Ferede calculates that Alberta would lose $16 million in lost tax revenue in the first year following a return to a 10% flat rate. Over four years, the income lost would be $1.36 billion, which is around 9% of the forecasted total revenue.

“By restoring the Alberta Tax Advantage, the government can help stimulate economic activity, which will increase prosperity among Albertans during the COVID recovery and beyond,” Ferede said.

Debt burden

However, some might consider any policy that reduces the Albertan government’s revenues is risky.

Alberta has financial issues with the Parliamentary Budget Officer warning that the provincial debt load relative to the size of its economy set to grow, making its current fiscal policies unsustainable.

Avoiding tax increases, the PBO said, let alone cutting taxes, would require a provincial government spending cut of more than 3%.