Tax burden for the average Alberta family set to grow

Alberta is typically thought of as a low-tax jurisdiction in Canada. That’s largely true. However, Alberta’s tax advantage will likely shrink in the future with a recent onslaught of tax increases—some already implemented, some soon to come.

But even today, the tax burden isn’t all that light. In 2016, the average Alberta family will pay a total of $47,752 in total taxes. That’s 37.4 per cent of its annual income ($127,822) going to provincial, federal and local taxes.

One way to put the size of this tax bill into context is to consider a hypothetical scenario where this year the average Alberta family paid its total annual tax bill upfront. Under these circumstances, it would give government every dollar it earned up to May 16. In other words, May 17 was Tax Freedom Day in Alberta. It’s only after four and a half months of the year that Alberta families finally work for themselves, and not government.

While this year Albertans celebrated Tax Freedom Day significantly earlier than other Canadians across the country, that could soon change once the full suite of tax increases announced over the past year (including the recently passed carbon tax) come into effect. Indeed, the tax hikes already implemented (including increases to the personal income tax and corporate income tax) would have pushed this year’s Tax Freedom Day later if not for the sharp economic downturn in the province, which increased unemployment and pushed many Albertans into lower income tax brackets.

Yet this level of taxation (again, 37.4 per cent of the average Alberta family’s income) is still not enough to satisfy the excessive spending habits of governments.

This year, the provincial government plans to spend $10.4 billion more than what revenues would allow while the federal government plans to spend $29.4 billion more. Government debt is simply deferred taxation, so these budget deficits ultimately must be paid for with taxes in the future.

Put another way, governments now spend more than they collect from Albertans each year, leaving the problem of paying for it to young Albertans.

Let’s assume the provincial and federal governments increased taxes further to balance their budgets this year instead of financing the extra expenditures with deficits. If that were the case, Tax Freedom Day in Alberta would arrive 25 days later. That means Albertans would start working for themselves nearly a month later—on June 11, instead of May 17. In this scenario, Tax Freedom Day in Alberta would come later than in neighbouring Saskatchewan. So much for the Alberta Advantage.

Albertans currently work 137 days of the year to fund government before pocketing a single dollar for themselves. Unfortunately, in the future, Albertans may end up working later into the year unless governments stop raising tax rates, begin living within their means and rein in spending.