Provincial income tax policy costs Albertans more: University of Calgary study

A University of Calgary study found that Alberta’s de-indexation policy costs Albertans more in taxes.

The study, co-authored by Lindsay M. Tedds and Gillian Petit, found Albertans paid $118.6 million more in taxes in 2020 because of the province’s de-indexation policy. Indexation happens when tax brackets move upwards with inflation.

On average, taxpayers affected by bracket creep — an increase in income results in higher taxes paid by the taxpayer even though their purchasing power has not changed — paid $51.43 more in taxes in 2020.

These same taxpayers can expect to pay between $235 to $291 in additional income tax in 2023, according to the study.

The Alberta government accrued $646.9 million in additional tax revenues as a result of de-indexation, Tedds and Petit wrote. Taxpayers can expect to pay between $570 million to $706 million more if the de-indexation policy continues into 2023.

“If tax brackets were indexed again, that witholding amount on our paycheques will drop, and a taxpayer would pocket more from their paycheque each pay period,” Petit told 770 CHQR.

“If the tax thresholds don’t change, they’re paying higher taxes even though they’re making more money. They’re not necessarily better off.”

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The study comes after the Albertan government de-indexed income taxes in Budget 2019. At the time, former Finance Minister Travis Toews said the province needed to find ways to “exercise restraint” and work to erase the province’s $63-billion debt.

It also comes after Canada’s consumer price index rose by 7.7 per cent in May 2022, the highest inflation rate since 1983.

Tedds and Petit said income brackets must be adjusted with inflation, along with a rise in wages, to avoid bracket creep.

“The government could re-index the tax brackets again. Another thing they could do is to re-index them but adjusted back to the 2019 rate of inflation,” Petit said.

“One way to think about how to help families with the rising cost of living would be to re-index the income tax brackets.”

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The Alberta NDP has since criticized the policy, saying the move has made life more unaffordable for vulnerable and marginalized Albertans. Alberta NDP leader Rachel Notley previously urged the United Conservative Party to reverse the de-indexation of provincial personal income tax, the Child and Family Benefit, Alberta Seniors Benefit, Income Support and AISH.

Kenney said there will be an announcement about more support coming this week but did not elaborate on what the measures might be during Saturday’s episode of Your Province, Your Premier on 770 CHQR and 630 CHED.

Earlier this week, Finance Minister Jason Nixon announced a $3.9-billion surplus at the end of the 2021-22 fiscal year ending March 31, saying one of the goals was to examine further ways to help Albertans get through the current stretch of rising prices.

“De-indexation will affect your mid- to high-income earners much more than low-income earners,” Petit said. “It’s not a policy that affects low-income earners.

“You’d want to re-index income-support programs that are for low-income earners.

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“Re-indexing the tax credits might help low-income families a little bit, but not as much as mid- to high-income earners.”

Tedds and Petit say Albertans may have to wait until the United Conservative Party leadership race is over to see any changes to the province’s de-indexation policy. Finance Minister Jason Nixon did not mention any changes to the de-indexation policy when he tabled the final results for the 2021-22 fiscal year last week.

In a statement to 770 CHQR, Nixon said the Alberta government provided over $2 billion in relief measures to Albertans in the last three months.

He also claimed the government has done more to address inflation than any other jurisdiction in the country, pointing to the province’s decisions to suspend the provincial gas tax and provide electricity and natural gas rebates.

“Alberta’s government has always maintained that when Alberta’s economic and fiscal situation has stabilized, the government will review Alberta’s overall tax system to make sure it is efficient, competitive, encourage economic growth and employment, and provides sufficient revenue,” Nixon said.

“At the moment, we are focused on building and maintaining a stable fiscal framework for the province now and into the future by prioritizing debt repayment and growing the Alberta Heritage Savings Trust Fund.”