|
|
 |
 |
Canada's Debt is High
Despite several years of surpluses, Canada's
debt remains high.
Canada's debt is over $500 billion, which is almost 45% of GDP. |
|
Alberta's
Has No Net Debt
Alberta has no net debt, and has been a net
creditor since June 30, 1999.
As Sesame Street would point out, one of these
things is not like the other. Albertans believe in fiscal health, and
it shows through Alberta's actions. Canadians do not, and that is clear
through their actions. |
|
Alberta's
Healthy Fiscal Position Not Due to Oil
There will be many people who mention that
Alberta's healthy fiscal position is due entirely to oil. This is not
true. Does oil revenue help? Certainly. Is it the reason why Alberta
continues to have the lowest taxes in Canada? Is it the reason why
Alberta continues to have no net debt? No.
For instance, Alberta was a net debtor until 1999. In 1999, Alberta was
faced with oil below $12 / bbl. Yet within the cheapest price of oil in
real terms in a generation, Alberta became the only province without
any net debt.
Yet another example is the fact that Alberta was debt free under the
Social Credit government from 1949-1971. Note that this was before
OPEC's oil boycott in 1973. Note that Alberta was not considered a
"have" province in 1961.
Alberta remained debt-free during Lougheed's tenure, despite the
hundreds of bilions of dollars stolen from Alberta by the Canadian
government.
Deficit Don Getty
shows that it is quite easy for Alberta to run up deficits and debt
like every other province in Canada. Getty inherited a deficit of $761
million in 1985-6, and oversaw its rise to $3.4 billion in 1992-3.
Klein took over in 1993, and was running a surplus two years later,
leading to Alberta's current status of having no net debt. Some people
will point to oil prices collapsing in 1986 as the reason why Alberta
started running deficits; they are wrong. Let's compare the price of
oil during the Getty and Klein administrations:
During Deficit Don
Getty's administration, the
price of crude oil averaged $18.28. During Klein's first seven years,
the time period where Klein moved Alberta from a debtor to a net
creditor, the price of crude oil averaged $16.55. It is clear that the
price of oil is not why Alberta runs surpluses.
|
|
Alberta's
Debt & Canada's Guarantee
One argument that someone will inevitably make
is that by becoming independent, Alberta will lose the Canadian
government's implicit guarantee of Alberta's debt. For example, if
Alberta were to have trouble paying her debt, the Canadian government
could essentially take over payments, preventing a default.
If history is any guide, the guarantee of the Canadian government is
worthless. From
1936-1945, Alberta defaulted on the principal of its maturing
issues and paid half of the coupon.
The Canadian government didn't guarantee a thing. Alberta is the only
province that this has happened to. |
|
Canadian Taxes Are High
Canada has the fifth highest personal income
taxes in the OECD, according
to the Canadian Taxpayer Federation.
Canadian income taxes were18.3% of GDP in 2000. Not only are Canadian
taxes high, but much higher than our neighbors to the south, whose
income taxes were 14.2% of GDP in 1999 (Canadian taxes were 18.7% in
1999). Canada is a high tax locale.
|
|
The Alberta Advantage: Low Taxes
Alberta has the lowest taxes by far in Canada.
Here is the Alberta Advantage:
-lowest corporate and personal taxes in Canada
-only province with flat personal taxes
-only province with no general retail sales tax
-combined provincial and municipal taxation is 56% of the Canadian
average
-lowest top combined marginal tax rate (39%)
-families earning $30,000 pay 85% less than the Canadian average
-families earning $60,000 pay 33% less than the Canadian average
-families earning $100,000 pay 35% less than the Canadian average
-corporate income tax is the second lowest in Canada
-small business corporate income taxes are the lowest in Canada
-gasoline taxes are the lowest in Canada
How much would it
cost Albertans if we adopted the same tax regimes as other provinces?
It is clear that Alberta is a low tax jurisdiction surrounded by high
tax jurisdictions. |
|
GST: Favoring Canada at the
expense of Alberta
The GST replaced the MST (Manufacturers Sales
Tax). The MST subject manufacturers to an 11% MST. They received a 4%
reduction in the sales taxes they were subject to after the GST was
implemented. Further, it hurt Alberta's economy, with a lesser
manufacturing industry. In essence, it was another transfer of wealth
from Albertan to Canada.
Also, the GST was an inconvenience into the life of everyday Albertans,
who hadn't had the displeasure of dealing with perceivable sales taxes
unless they were vacationing in the US or Canada. |
|
Income Trust Taxation: Taxing
Alberta Disproportionately
The Canadian government recently imposed taxes
on
income trusts. While on the surface this may look like another
government tax grab, it represents the transfer of wealth from
Albertans to Canadians and the legislation of favor towards Eastern
Canada at the expense of Alberta and Albertans. Capital is a scarce
resource, and Ontario concerns have been unable to compete for capital
against Alberta's resource plays. Hence, legislating a tax that
disproportionately harms Albertan interests will help Eastern Canada
compete where they could not otherwise compete.
The reason why this legislation disproportionately harms Albertans is
because Alberta's resource firms have efficiently structured energy
investments to pay off via Alberta Royalty Trusts. These typically pay
off much higher distributions than the ordinary Eastern Canadian form
of income trusts, REITs (real estate income trusts). The taxing of
income trusts transfers wealth from Albertans and those who invest in
Alberta enterprise, while at the same time artificially making Eastern
Canadian investments more attractive than those in Alberta.
The net impact is that the federal government destroyed hundreds of
millions of dollars of Albertans' wealth, while exempting REITs. Why?
For the same reason: governments do not need Alberta to gain or hold
power, so they use it to fund policies that benefit those areas they do
need to hold power. |
|
Canada & Alberta:
Different Paths, Once Again
Canadians and Albertans are different people.
We will see it in different areas, but in this area we see that
Canadians prefer governments that deliver higher taxes and
debts. Albertans, on the other hand, have preferred governments that
have delivered lower taxes and little if any debt. |
|
 |
|
|
|
