This potent fiscal mix made Alberta an outlier among provinces and a preferred destination for investors and job seekers. At the peak of the Alberta Advantage in the early 2000s, the province had the lowest combined provincial/federal corporate and personal tax rates of any jurisdiction in North America. As a result, the economy boomed, the provincial debt disappeared, and Alberta often out-competed low-tax U.S. states such as North Dakota and Texas for workers and investment.
Today, much of that advantage has been squandered. What can Alberta do to get its advantage back?
In the early 1990s, Klein inherited a fiscal crisis from his free-spending predecessor, Don Getty. In response, the Klein government took dramatic action. Government spending was slashed by roughly $3,000 per person over four years to balance the budget. Then Klein set provincial treasurer Stockwell Day to work reforming the personal income tax system.
“We believed that a single-rate tax would not only encourage productivity but would also put up guardrails to prevent government from over-expanding,” a retired Day recalls today in an interview from his home in Kelowna, B.C. “A progressive tax system is inherently anti-productive. It discourages extra effort and innovation because people know that working harder or earning more means getting taxed at a higher rate.”
Day had firsthand experience with this productivity-dampening effect. “When I was younger, I worked in a [meat] packing plant,” he says. “My colleagues would often refuse overtime because they believed the extra effort wasn’t worth it as their overtime would just be taxed away at a higher rate” if the additional income moved them into a higher bracket. “That always stuck with me. Why punish people who want to work harder?”
On Jan. 1, 2001, Day’s new system took effect: a flat 10 percent tax on all personal income. This ushered in an era of remarkable economic growth and provincial success, coinciding with a boom in the oil and gas sector. By 2006, Alberta’s jobless rate had bottomed out at 3.1 percent, the lowest in three decades.
Eventually, however, Alberta’s low-tax crown began to slip. After Klein retired in 2006, subsequent PC governments steadily boosted spending far beyond inflation and population growth. When the oil boom turned to bust, those fat surpluses turned to deficits. And then the government looked to additional sources of tax revenue.
In 2015, Rachel Notley’s NDP won the provincial election, ending 44 years of consecutive PC rule. She quickly raised corporate taxes and scrapped the flat tax, replacing it with a five-tier system that topped out at 48 percent (including federal taxes). RIP Alberta Advantage.
Along with higher taxes, the NDP government bound up the province in red tape and regulations. In 2018, a global survey of petroleum executives revealed Alberta’s appeal had plummeted from the 14th most attractive energy investment spot in the world to 43rd.
It is a move Day warns against. “Once you introduce a sales tax, you lose that unique edge,” he says of Alberta’s former fiscal advantage. He frets that Alberta will become “just another jurisdiction” if it adds a sales tax to its growing mix of other taxes and deficits.
The current UCP government has turned the corner on some of the NDP’s biggest mistakes. Corporate tax rates have been lowered once again. And the most recent budget reduces the personal tax rate for the first $60,000 of income. But the 2025 budget also raises education taxes and other fees. And the budget itself incurs a $5.2 billion deficit, with further deficits projected through 2027, signalling a government still unprepared or unwilling to live within its means.
Alberta’s low-tax mojo may be damaged, but it’s not beyond repair. By restoring a flat tax, resisting the lure of new taxes, and reining in expenditures, the province can still reclaim its title as Canada’s king of fiscal prudence and prosperity.