Alberta Taxes

[Canehdianman]

Originally Posted by MarchHare

You really need to research what the equalization program is and how it actually works before posting nonsensical and erroneous rants about it.

First, Alberta does not pay "over $20 billion in equalization payments". For 2013-2014, the entire amount of equalization will be $16.1B. Source: http://www.fin.gc.ca/fedprov/eqp-eng.asp

I agree with this. I'm not sure how much Alberta pays per year, I'd guess around $5-6B? If you want a shocking number, how about the fact that Quebec has received over $250B since the program started.

Originally Posted by MarchHare

Second, no province "pays" equalization. The Government of Alberta does not cut a cheque and send it to the Governments of PEI, New Brunswick, Quebec, etc. Equalization is a federal program that sees money sent from the Government of Canada to selected provinces that are deemed, by a complex mathematical formula, to not have the same revenue-generating power ("fiscal capacity) as other more prosperous provinces. The Equalization program is funded by the taxpayers of every province. My parents, who live in New Brunswick, see a portion of their federal tax dollars spent on equalization, just like I do in Alberta. The only difference is that their provincial government receives money back from Ottawa while mine does not.

Also, contrary to your assertion, any hypothetical new tax at the provincial level in Alberta would in no way whatsoever "support other provinces (sic) poor government decisions".

I disagree with this. You are arguing semantics. If Alberta and Quebec each put $100 into a pot, but then Alberta takes nothing out, and Quebec takes $200, Alberta has paid Quebec $100. Putting the money into the pot doesn't magically make it no longer traceable to the source. For 2013-2014, Alberta, BC, Sask and NL are subsidizing the rest of the Provinces, I don't see how that can be argued.

Originally Posted by MarchHare

Third, how Quebec (or any other province that receives equalization, but for some reason raging Albertans only ever complain about PQ in these discussions) manages its provincial budget has no bearing whatsoever on the quantity of equalization they receive. The Government of Quebec could implement the harshest austerity measures imaginable and cut spending to a level that would give pause to even a staunch Tea Party supporter, and they would still receive exactly the same amount of equalization as they do today. Equalization is only determined by fiscal capacity, not by government spending.

I disagree with this as well. The policies of the Quebec government (and the majority of the other 'have-not' Provinces) offer subsidies and additional benefits to workers of those Provinces. For example, Quebec's super cheap daycare means that people don't need to earn as much salary, since they don't have to pay the same amount for daycare. This lowers the average income in Quebec (which is a big factor in the calculation). I disagree with your assertion that the Provincial budgets have no impact on the calculation, it might not be a direct factor in the calculation, but it certainly affects it.

Bear in mind, I'm not saying that Quebec is deliberately gaming the system or is somehow being dishonest (mostly because I have no proof). However, there is certainly an incentive to Quebec to keep its average income low, as it can continue to get net equalization payments from other Provinces. Citizens of Quebec (and other 'have-not' Provinces) are enjoying a positive externality on the backs of the few remaining 'have' Provinces.

Originally Posted by MarchHare

Finally, if you want the same quality of government services that Quebec provides its citizens (e.g. greater tuition subsidies, more generous maternity benefits, etc.), then vote for a candidate/party in the next provincial election who will make those things a priority. Of course, funding those services would surely necessitate an increase in your provincial taxes to a similar level that the citizens of Quebec pay, which is substantially higher than what we currently pay in Alberta.

I can think of another way we might find the funds to provide those additional services. Stop making equalization payments. Then taxes wouldn't go up, we could enjoy all of those nice extra services and Quebec would no longer have a positive externality to rely on.

I can understand (and support) an equalization payment system if those payments are only being used to increase production, expand industry or otherwise bring the 'have-not' Provinces up to the average "fiscal capacity" of the other Provinces. I also believe the equalization payments should taper off over time. Then Quebec might have used its $250B to enhance productivity, increases salaries and hire more employees rather than come to rely on it to offset part of their annual deficit.

[Flamenspiel]

Pointing the finger at Quebec is not in anyway constructive. I suggest anyone feeling that way should attend the Flames vs Habs game on October 9th and ask one of the Quebec migrants about taxation levels in Montreal.

[Senator Clay Davis]

Seeing as though CP is loaded with 1%ers, I'm sure you'd all like to know you'd be paying 54.75% tax when the provicial tax rate (25.75%) is added to the federal rate (29%) in Quebec. So when you want all those things like daycare and such, just ask for you taxes to go to Quebec levels; or seeing as though that'll never happen you can just accept that despite equalization, Quebecers pay substantially more in taxes than Albertans.

[Makarov]

Originally Posted by Canehdianman

I disagree with this as well. The policies of the Quebec government (and the majority of the other 'have-not' Provinces) offer subsidies and additional benefits to workers of those Provinces. For example, Quebec's super cheap daycare means that people don't need to earn as much salary, since they don't have to pay the same amount for daycare. This lowers the average income in Quebec (which is a big factor in the calculation). I disagree with your assertion that the Provincial budgets have no impact on the calculation, it might not be a direct factor in the calculation, but it certainly affects it.

There are some truly bizarre assumptions in the above paragraph. For instance, what evidence supports the causal relationship that you assume exists between inexpensive day care and reduced labour market participation? Indeed, the conventional wisdom is probably the opposite: inexpensive day care should increase labour market participation.

Also, income taxes are only one of five income sources used to calculate fiscal capacity. I'm not sure that I would characterize it as "a big factor" (that's more of a nitpick though. )

[Makarov]

Originally Posted by Senator Clay Davis

Seeing as though CP is loaded with 1%ers, I'm sure you'd all like to know you'd be paying 54.75% tax when the provicial tax rate (25.75%) is added to the federal rate (29%) in Quebec. So when you want all those things like daycare and such, just ask for you taxes to go to Quebec levels; or seeing as though that'll never happen you can just accept that despite equalization, Quebecers pay substantially more in taxes than Albertans.

And the Quebec government spends less (though its close, if I recall correctly) than Alberta, so there's that too.

[Canehdianman]

Originally Posted by Makarov

There are some truly bizarre assumptions in the above paragraph. For instance, what evidence supports the causal relationship that you assume exists between inexpensive day care and reduced labour market participation? Indeed, the conventional wisdom is probably the opposite: inexpensive day care should increase labour market participation.

Also, income taxes are only one of five income sources used to calculate fiscal capacity. I'm not sure that I would characterize it as "a big factor" (that's more of a nitpick though. )

The only bizarre assumption is that you decided that being able to accept a lower salary indicated reduced labour market participation.

I simply stated that if daycare were $7 a day, people would likely be willing to accept a lower salary. I know I would (although I am hardly the 'reasonable man').

[Makarov]

Originally Posted by Canehdianman

The only bizarre assumption is that you decided that being able to accept a lower salary indicated reduced labour market participation.

I simply stated that if daycare were $7 a day, people would likely be willing to accept a lower salary. I know I would (although I am hardly the 'reasonable man').

I see. You don't have other things you'd like to spend your mo ey on (i.e., other reasons to maximize your income potential?) Also, does the same logic apply to Alberta's lower taxes?

[Canehdianman]

Originally Posted by Makarov

I see. You don't have other things you'd like to spend your mo ey on (i.e., other reasons to maximize your income potential?) Also, does the same logic apply to Alberta's lower taxes?

I was giving a deliberately narrow example. If you want to expand it, we will need to take into account Alberta's higher cost of living. It doesn't really seem like a beneficial discussion to have.

At the end of the day, I think that the purpose of equalization payments needs to be reexamined and refocused.

[opendoor]

Originally Posted by Canehdianman

I disagree with this. You are arguing semantics. If Alberta and Quebec each put $100 into a pot, but then Alberta takes nothing out, and Quebec takes $200, Alberta has paid Quebec $100. Putting the money into the pot doesn't magically make it no longer traceable to the source. For 2013-2014, Alberta, BC, Sask and NL are subsidizing the rest of the Provinces, I don't see how that can be argued.

Given that the provinces themselves don't pay anything for equalization payments, delineating the source of the federal revenue isn't really that valuable of an exercise. It's like complaining that property taxes in a rich neighborhood are funding roads in a poorer neighborhood where per capita tax revenue is lower. It's just a basic fact of federalism and progressive taxation.

I disagree with this as well. The policies of the Quebec government (and the majority of the other 'have-not' Provinces) offer subsidies and additional benefits to workers of those Provinces. For example, Quebec's super cheap daycare means that people don't need to earn as much salary, since they don't have to pay the same amount for daycare. This lowers the average income in Quebec (which is a big factor in the calculation). I disagree with your assertion that the Provincial budgets have no impact on the calculation, it might not be a direct factor in the calculation, but it certainly affects it.

Bear in mind, I'm not saying that Quebec is deliberately gaming the system or is somehow being dishonest (mostly because I have no proof). However, there is certainly an incentive to Quebec to keep its average income low, as it can continue to get net equalization payments from other Provinces. Citizens of Quebec (and other 'have-not' Provinces) are enjoying a positive externality on the backs of the few remaining 'have' Provinces.

You're going to have to explain how cheaper daycare results in lower salaries. I'm not really following the logic.

I can think of another way we might find the funds to provide those additional services. Stop making equalization payments. Then taxes wouldn't go up, we could enjoy all of those nice extra services and Quebec would no longer have a positive externality to rely on.

Again, no provincial money is going to equalization payments so there's no provincial money to be saved. What you're asking for is basically a federal tax rate that is lower for Albertans only, since that's the only thing that's going to accomplish your goal of a vastly lower net contribution to the federal treasury from Albertans.

I can understand (and support) an equalization payment system if those payments are only being used to increase production, expand industry or otherwise bring the 'have-not' Provinces up to the average "fiscal capacity" of the other Provinces. I also believe the equalization payments should taper off over time. Then Quebec might have used its $250B to enhance productivity, increases salaries and hire more employees rather than come to rely on it to offset part of their annual deficit.

Given that per capita GDPP of the 5 main receivers of equalization payments (QC, MB, NS, NB, and PEI) has shown relative growth when compared to the other provinces, I don't see a basis for this argument.


Anyway, for anyone interested in the issue, here's a pretty good summary of the by an economics professor at U of A that tackles a lot of the myths and misconceptions about the program:

http://www.business.ualberta.ca/Cent...pril2final.pdf

[sevenarms]

Originally Posted by CaramonLS

I've heard the CBE has some of the highest admin costs of any board in Canada. I don't doubt it either, some of their Admin salaries rival Oil companies here in Calgary.

The CBE admin salaries rival those of oil companies because they have to offer competitive wages if they want to hire anyone decent.

[Canehdianman]

Originally Posted by opendoor

Given that the provinces themselves don't pay anything for equalization payments, delineating the source of the federal revenue isn't really that valuable of an exercise. It's like complaining that property taxes in a rich neighborhood are funding roads in a poorer neighborhood where per capita tax revenue is lower. It's just a basic fact of federalism and progressive taxation.

You're going to have to explain how cheaper daycare results in lower salaries. I'm not really following the logic.

All I was trying to say is that earning 100k a year or 80k a year with a 20k childcare benefit is the same thing (so long as you use the childcare benefit). But on an average salary chart, it appears that you are making 20% less than your 'richer' neighbour.

Originally Posted by opendoor

Again, no provincial money is going to equalization payments so there's no provincial money to be saved. What you're asking for is basically a federal tax rate that is lower for Albertans only, since that's the only thing that's going to accomplish your goal of a vastly lower net contribution to the federal treasury from Albertans.

Not at all. I'm asking that federal tax dollars be used federally and not as a slush fund.

Originally Posted by opendoor

Given that per capita GDPP of the 5 main receivers of equalization payments (QC, MB, NS, NB, and PEI) has shown relative growth when compared to the other provinces, I don't see a basis for this argument.

If this is true over the long run, then I'm impressed. Although I would question how Quebec (which has been a beneficiary of the program since 1957) could have above average growth for over 50 years and still be a have-not Province. Either it started orders of magnitude behind, or it is only growing faster in the short-term.

Originally Posted by opendoor

Anyway, for anyone interested in the issue, here's a pretty good summary of the by an economics professor at U of A that tackles a lot of the myths and misconceptions about the program:

http://www.business.ualberta.ca/Cent...pril2final.pdf

I am at work right now and can't devote the time to read it, but it looks interesting. I'll take a read this weekend if I have time. Thanks.

[Makarov]

Originally Posted by Canehdianman

All I was trying to say is that earning 100k a year or 80k a year with a 20k childcare benefit is the same thing (so long as you use the childcare benefit). But on an average salary chart, it appears that you are making 20% less than your 'richer' neighbour.

I guess, but since you have utterly failed to prove the totally counterintuitive proposition that it is possible for governments to artificially supress incomes by providing public services (even ignoring all of the other problems, like failing to account for all of the other factors which might measure "standard of living"), its a meaningless observation, no?

The ironic thing is that the purpose of equalization is to help achieve exactly what you seem to be advocating for: equal capacity among provinces to provide services.

[opendoor]

Originally Posted by Canehdianman

All I was trying to say is that earning 100k a year or 80k a year with a 20k childcare benefit is the same thing (so long as you use the childcare benefit). But on an average salary chart, it appears that you are making 20% less than your 'richer' neighbour.

Yeah, I'm just not sure there's a causal effect there. Saying that subsidized daycare (or subsidized anything) leads to lower wages is a pretty big leap that I don't think is really supported by evidence. It's like saying higher taxes would lead to higher wages, which is something that I don't buy.

Not at all. I'm asking that federal tax dollars be used federally and not as a slush fund.

But a huge amount of federal money is used to fund provinces, so it's going to find its way back somehow. Then it's a question of whether it should be equal per capita or if there should be other considerations.

But regardless, even if you set aside all the equalization and uneven federal/provincial transfers of funds, Alberta will still see a huge shortfall in terms of taxes out and funding in. About 2/3rds of Alberta's net contribution to the federal government has to do almost solely with the concentration of higher earners in the province and the higher income taxes that result. So even if all types of equalization were totally eliminated and all provinces received strictly per capita funding from the federal government, the population of Alberta would still be paying out much more in federal taxes than they receive (almost 70% of what it is under the current system). That's just a basic fact when a province's population has a higher proportion of high income individuals than anywhere else in the country. So equalization is really only a small part of the perceived inequity.

If this is true over the long run, then I'm impressed. Although I would question how Quebec (which has been a beneficiary of the program since 1957) could have above average growth for over 50 years and still be a have-not Province. Either it started orders of magnitude behind, or it is only growing faster in the short-term.

It's more that the increased growth is quite slight. I believe it's a case of those provinces having a per capita GDPP in the early '80s that was 87-88% of the rest of Canada and now it's in the 89-90% range. So it's not a huge increase, but given that it has more than kept pace, I don't really see any evidence that equalization payments are discouraging economic growth.


IMO, if Alberta was taxing its residents at a similar rate to other provinces and still had a big funding shortfall, then a case could be made that they're being slighted by the current arrangement since expenses in a place like Alberta are generally higher. However, that's not the case at all and any funding shortfalls could easily be made up for by instituting a more modern tax system (either through an HST or a more progressive income tax). I guess just don't see the wisdom in using revenues from a non-renewable resource to maintain some of the lowest tax rates in the industrialized world. Alberta could still have quite low taxes relative to their neighbors while being able to consistently operate in the black and have excellent social services.

[Canehdianman]

Originally Posted by Makarov

I guess, but since you have utterly failed to prove the totally counterintuitive proposition that it is possible for governments to artificially supress incomes by providing public services (even ignoring all of the other problems, like failing to account for all of the other factors which might measure "standard of living"), its a meaningless observation, no?

The ironic thing is that the purpose of equalization is to help achieve exactly what you seem to be advocating for: equal capacity among provinces to provide services.

I'm not sure what you are saying I "utterly failed to prove" when you agreed with the example I provided...

Anyways, I am ignoring my work and skimming the article. I'm finding it to be a good read so far. And it does seem like changes have been made to the program to improve it.

I guess my efficiency focused mind pushed me away from the transfer payment system. It was shocking to read that PEI has a fiscal capacity that is 1/3rd that of Alberta's. Based on that, I'd be in favour of flying everyone from PEI to Alberta. We could turn PEI into a huge potato farm or something.

[Makarov]

Originally Posted by Canehdianman

I'm not sure what you are saying I "utterly failed to prove" when you agreed with the example I provided...

I only agreed that, in some sort of hypothetical vacuum, a person who earns $100,000 per year and spends $20,000 per year on daycare would have the same net income as a person who earns $80,000 per year and receives the same daycare (which they would have otherwise purchased) for free.

However, as I noted, you have utterly failed to show how that observation could possibly be relevant to a discussion on Canada's equalization regime (or any topic, really.)[/QUOTE]

Originally Posted by Canehdianman

Anyways, I am ignoring my work and skimming the article. I'm finding it to be a good read so far. And it does seem like changes have been made to the program to improve it.

The changes have certainly made the program better from Alberta's perspective. I'm not sure that the changes have made the program better for other provinces (or in general). Of course, measuring the success of the program is inherently difficult.

Originally Posted by Canehdianman

I guess my efficiency focused mind pushed me away from the transfer payment system. It was shocking to read that PEI has a fiscal capacity that is 1/3rd that of Alberta's. Based on that, I'd be in favour of flying everyone from PEI to Alberta. We could turn PEI into a huge potato farm or something.

The world is a complicated place and there is a lot more to it than efficiency. For example, the prevailing wisdom seems to be that Mao-esque forced mass relocations tend to be disastrous for society.

[edslunch]

Originally Posted by opendoor

I guess just don't see the wisdom in using revenues from a non-renewable resource to maintain some of the lowest tax rates in the industrialized world. Alberta could still have quite low taxes relative to their neighbors while being able to consistently operate in the black and have excellent social services.

Yes!

[Dienasty]

[QUOTE=edslunch;4401672]
Alberta is a wealthy province and has a high proportion of well-paid citizens (not just on CP). Why not implement a more sensible tax system that provides more stable funding and allows us to build up petro-reserves. Suppose we introduced a sales tax or made income tax more progressive to collect more revenues through taxation. Stop spending resource revenues - put 100% in the Heritage fund. Over time as the fund generates more investment income use a portion to reduce tax levels. QUOTE]

Yeah I don't know many governments that would cut taxes if they had enough, instead they would pay themselves more. It happens all the time.

Good theory, but in practice governments will always want to raise taxes and if they have a windfall they will use it to increase salaries/book hotel floors to the Olympic games and only use 1-2 rooms/take extravagant trips.

As well, who cares if they cut post secondary courses. What is the pointof Greek and Roman studies, most Sociology, Astronomy. There are even classes that analyze TV shows such as the Soprano's etc. Does the government really need to pay for these classes?

If School put more effort in Engineering, Business, Architecture, Sciences, Math then they would have people moving into lucrative positions in industry and would have the cash flow to donate back to the school they attended. Not funding 7-8 assistant TA's to the Greek and Roman Studies professor.

[bizaro86]

The thing about cheap daycare lowering wages wasn't my assertion, but I could see how that might be possible.

I know a number of families who have chosen to have one parent stay at home with children after determining their net wages after the cost of childcare weren't sufficient. If childcare was extremely cheap, that calculation would shift, and more parents would enter the workforce. The greater supply of labour would change the labour market equilibrium, lowering wages.

I can't prove that, but it makes sense. It doesn't account for 2nd order effects, obviously, and wouldn't be a $1 for $1 offset, but it'd be something.

[Makarov]

Originally Posted by bizaro86

The thing about cheap daycare lowering wages wasn't my assertion, but I could see how that might be possible.

I know a number of families who have chosen to have one parent stay at home with children after determining their net wages after the cost of childcare weren't sufficient. If childcare was extremely cheap, that calculation would shift, and more parents would enter the workforce. The greater supply of labour would change the labour market equilibrium, lowering wages.

I can't prove that, but it makes sense. It doesn't account for 2nd order effects, obviously, and wouldn't be a $1 for $1 offset, but it'd be something.

Right, but it would add an extra income to the province's fiscal capacity calculation, so for the purposes of equalization, it would actually raise a province's "income" (which, again, is what one would expect).

[edslunch]

[QUOTE=Dienasty;4407553]

Originally Posted by edslunch

Alberta is a wealthy province and has a high proportion of well-paid citizens (not just on CP). Why not implement a more sensible tax system that provides more stable funding and allows us to build up petro-reserves. Suppose we introduced a sales tax or made income tax more progressive to collect more revenues through taxation. Stop spending resource revenues - put 100% in the Heritage fund. Over time as the fund generates more investment income use a portion to reduce tax levels. QUOTE]

Yeah I don't know many governments that would cut taxes if they had enough, instead they would pay themselves more. It happens all the time.

Good theory, but in practice governments will always want to raise taxes and if they have a windfall they will use it to increase salaries/book hotel floors to the Olympic games and only use 1-2 rooms/take extravagant trips.

As well, who cares if they cut post secondary courses. What is the pointof Greek and Roman studies, most Sociology, Astronomy. There are even classes that analyze TV shows such as the Soprano's etc. Does the government really need to pay for these classes?

If School put more effort in Engineering, Business, Architecture, Sciences, Math then they would have people moving into lucrative positions in industry and would have the cash flow to donate back to the school they attended. Not funding 7-8 assistant TA's to the Greek and Roman Studies professor.

Right, the world would be a freakin paradise if we only had engineers and business people