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Canada's Debt is High

Despite several years of surpluses, Canada's debt remains high.

Federal Debt (Accumulated Deficit)

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.

Provincial Net Assets/Debt March 2004 Chart

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:

Year Getty Year Klein
1986 $14.64 1993 $16.74
1987 $17.50 1994 $15.66
1988 $14.87 1995 $16.75
1989 $18.33 1996 $20.46
1990 $23.19 1997 $18.97
1991 $20.19 1998 $11.91
1992 $19.25 1999 $16.55

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.