There’s a new group called Fairness Alberta making the media rounds recently. They claim that Alberta has been getting the economic shaft from the rest of Canada, particularly regarding the equalization programme. They’re spreading the same right-wing misinformation I see others spreading, so I thought I’d set the record straight on the issue.
Equalization is a federal transfer payment program designed to reduce differences in revenue-generating capacity between provinces.
By compensating poorer provinces for their relatively weak tax bases or resource endowments—such as smaller or poor populations and few natural resources—equalization ensures that all provinces can provide a reasonably similar level of services at reasonably similar levels of taxation, regardless of which province they call home.
Without it, some provinces would have to charge much higher tax rates than others just to provide the same level of government services.
The programme is financed exclusively through federal revenues, such as personal income tax, corporate income tax, and GST. Provincial governments do not pay anything into the equalization programme.
The idea that Alberta has contributed more than any other province is a complete myth. Alberta, as a government, has never contributed to the equalization programme.
All Canadian individuals and corporations pay taxes—theoretically speaking—and that’s where the money for the programme comes from. Income tax rates and GST rates are the same across the country; no one pays a higher rate just because of where they live.
GST for Canadians living in Alberta is 5%, but it’s also 5% for Canadians living in Québec. And PEI, and Saskatchewan, and everywhere else.
Likewise, income tax rates are the same, regardless of where you live. If you make $45,000 a year living in Alberta, you pay 15% in federal income tax, but you pay 15% if you make $45,000 in Québec. If you make $500,000 a year living in Alberta, you pay 33% in federal income tax, but you pay 33% if you make $500,000 in Québec, too.
Now, it’s true that Canada receives more income from people and corporations in Alberta than from any other single province. Take a look at this graph, which shows federal revenues and expenditures by province for 2017.
Clearly, Canada doesn’t receive more revenue from any other area of the country than it does from persons and corporations within Alberta.
That being said, Canada gets roughly 15% of its revenue from people and corporations within Alberta. People and corporations in all the other provinces collectively contribute nearly 85% of Canada‘s revenue. So, while it’s sort of true that Alberta—or rather people and corporations within Alberta—pay more than any other province, they’re not keeping the programme afloat on their own.
Now let’s look at where that money comes from.
More than half of the federal revenue that comes from within Alberta is personal income tax. Corporate income tax makes up roughly 16% of the federal revenue collected. GST and “other revenue” each make up around 11%, and contributions to social insurance plans make up about 5.5%.
Now, keep in mind that the numbers in the first chart are per capita amounts. That means that Canada isn’t receiving more money from persons and corporations within Alberta because their population is the highest in Canada. We also know that it’s not because Canada charges Alberta persons and corporations higher tax rates.
So why the higher per capita amount then?
Well, if the population isn’t higher and the tax rates are the same as they are everywhere else, then the only explanation is that those paying the taxes are making or spending more than others.
For example, someone making $250,000 a year, will theoretically pay $61,403.56 in personal income tax. Someone who makes $500,000, however, will pay $143,903.56 in personal income tax. Even though both are taxed at 33%, the person paying the most is also making the most.
Likewise, someone buying a $10,000 car will pay $500 in GST, while someone buying a $100,000 car will pay $5,000 in GST. Even though both are taxed at 5%, the person paying the most is also spending the most.
In 2017, Canada collected—on average—$6,636 per person in income tax from people living in Alberta. That’s higher than the per-person rate in any other province. That means, on average, people in Alberta had higher incomes in 2017.
Alberta corporations paid the most in income tax, too, at $1,826 per capita. The next highest was Ontario, with $1,493 per capita. And since corporations are taxed the same rate across the country, Alberta corporations must have higher taxable incomes than corporations elsewhere in the country.
Same goes for GST. Canada collected $1,333 per capita in GST from within Alberta than it did from within any other province, which meant that Alberta persons and corporations spent $26,660 per person on taxable purchases in 2017. BC was the next highest at $24,540 per person.
So, why does Alberta “send more money to Ottawa” than any other province?
- People in Alberta have higher salaries.
- Corporations in Alberta have higher revenues.
- People and corporations in Alberta spend more money on taxable goods and services.
Remember that those higher salaries are an average. It doesn’t mean that you or I necessarily are making more than any particular person in Québec or Ontario. For example, in 2017, Alberta’s median income was $41,500, the highest in the country. Median income is the halfway mark between the highest income and the lowest income, which means that Alberta either has the highest top income in the country, the highest bottom income in the country, or both.
If Alberta wants to lower how much they send to Ottawa, there’s a pretty easy solution: maybe they should lower corporate profits. Or reduce the wages of the wealthy.
And increasing worker wages is one way to accomplish both of those things.
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