Guest Opinion: Economic freedom is key to recovery in Alberta

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Alberta still has a long way to go before it regains the legendary “Alberta Advantage,” a powerful magnet that has attracted investment and migrants from across Canada and around the world.

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Perhaps nothing demonstrates this better than the province’s dizzying fall in the Fraser Institute’s Economic Freedom of North America (EFNA) report.

Indeed, Alberta’s seven-year reign as the most economically free province or state in Canada, the United States and Mexico came to an end in 2015 and the province fell to 33rd in that report. year (based on 2019 data, the most recent available).

Economic freedom – the ability of individuals to make their own economic decisions – fuels economic growth and prosperity by unleashing people’s drive and ingenuity.

Economically free jurisdictions grow faster, create more jobs, and reduce poverty at much higher rates than economically less free jurisdictions.

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Until recent years, Alberta’s outstanding economic performance was not only driven by oil and gas, but also by high levels of economic freedom.

The “Alberta Advantage” included low taxes and relatively low government spending, coupled with reasonable regulation, leaving Albertans freer to spend their own money and make their own economic choices.

But in part due to developments largely outside the province, regulatory uncertainty and reversals have severely hurt Alberta’s energy industry.

Ottawa has increased taxes and introduced new ones (including the carbon tax), increased environmental restrictions, and limited market access for Alberta oil by banning shipments on certain tankers through ports of British Columbia.

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While the full effect of these changes was not felt in 2019 (many were implemented during the year or later), the province has since seen more from Ottawa, including a hard cap on greenhouse gas emissions in the oil and gas sector (while all other sectors are exempt).

But Alberta also has a local problem — the growing size of the provincial government, which is reducing the scope for free trade, and the dynamism of the private sector, which funds the government.

Among other metrics, the EFNA report gauges the impact of provincial and municipal governments – here, Alberta saw the largest decline of any province between 2015 and 2019.

Consider that the provincial government of Alberta went from a budget surplus of $8.9 billion (in 2005-06) to a projected budget deficit of $7.8 billion for this fiscal year with net financial debt exploding at $69.8 billion.

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On the tax side, Albertans have endured years of tax increases (including corporate and income tax), although the Kenney government recently reversed the general corporate tax rate to 8%, the lowest in Canada.

And the government is committed to controlling spending and restoring fiscal competitiveness, which would strengthen Alberta’s economic freedom.

Again, economic freedom is constrained by taxation and public spending; large expenditures increase the government’s economic footprint and politicize the economy.

The Kenney government faces unusual challenges with COVID, regulatory hurdles and uncertain (albeit rising) oil prices, which underscore the need for provincial policies that promote economic freedom.

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Finally, when times and challenges were different, Prime Minister Jean Chrétien in the mid-1990s and Alberta Premier Ralph Klein in the early 1990s introduced major spending cuts while restructuring spending and taxation to reduce barriers to economic freedom.

Economic growth was robust and fiscal restraint positioned Alberta and Canada well for the decades to come.

The challenge for Alberta will be to restore fiscal balance and shrink the size of government in order to increase economic freedom and regain the “Alberta advantage”.

Fred McMahon is a resident scientist at the Fraser Institute.

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