The Alberta tax advantage is disappearing three decades after Ralph Klein’s reforms
Back in the mid-1990s, former Alberta premier Ralph Klein embarked on a series of tax and spending cuts that laid the foundation for what would become known as the “Alberta advantage.”
Oil prices had collapsed the previous decade, and a series of deficits were cranking up the dial on the province’s debt servicing costs. To fend off a looming fiscal crisis, Klein cut government spending by 20 per cent in two years, scrapping numerous public programs and eliminating tens of thousands of civil service jobs. By 2001, his Progressive Conservative government had introduced what became its signature tax policy — a flat 10-per-cent rate applied equally to all incomes — and by 2006 it had slashed corporate taxes nearly five per cent.
Taken together, those policies would solidify Alberta’s small government identity, offering a competitive edge and philosophical conviction that governments continue to tout to this day. More than anything else, it was that low tax structure that put the “advantage” into Klein’s mantra, emphasizing the province’s other inherent benefits like business-friendly regulations and an abundance of natural resources.
More than 30 years after Klein’s reforms, however, the Alberta tax advantage has significantly eroded.
While the province remains Canada’s lowest-tax jurisdiction due to its absence of a provincial sales tax and lower corporate taxes, the gap is narrowing. Alberta ditched its flat tax in 2015, and income taxes for many middle-class earners are now higher in the province than in B.C. or Ontario. Compared with resource-rich U.S. states, which have been actively cutting taxes, the income tax slide is even more pronounced.
Since the Klein years, Alberta has increased insurance premium taxes, fuel taxes (from nine cents per litre to 13 cents), and numerous other levies that have inflated the cost of everyday goods. Property taxes were hiked sharply in each of the last two provincial budgets, another reversal of Klein-era policies.
“Alberta still has a tax advantage, but the gap has significantly shrunk,” said Tegan Hill, director of Alberta policy at the Fraser Institute, who has closely analyzed the shift.
The drift away from Alberta’s previous days of austerity are equally visible in its weakened fiscal position and ever-increasing spending.
On Feb. 26, Alberta Premier Danielle Smith posted a $9.4 billion budget deficit, driven by a $6 billion leap in spending that the premier blamed on higher public service costs associated with rapid immigration. (Another reason for the shortfall was lower-than expected oil prices, while a spike in crude prices following the Iran war could effectively wipe away the projected deficit if they persist.)
The province’s spending relative to other provinces has ballooned, particularly since 2015, which marked the beginning of the NDP government and later COVID-19 emergency funding programs. Alberta’s total expenses as a per cent of GDP was 12.8 per cent in 2014, 6.1 per cent less than Ontario and 12.8 per cent less than Quebec. By the 2026-27 budget, that spending had grown to 17.1 per cent, shrinking the gap to 1.3 per cent less than Ontario and 8.5 per cent less than Quebec.
Alberta’s narrowing advantage is most evident on taxes over the last 10 years, which voters can see for themselves by comparing data that Alberta and other provinces include in their budgets.
According to comparisons in Alberta’s 2026 budget, a two-income family with two children earning a combined $125,000 will pay $1,800 less in annual taxes in Alberta than the same household in British Columbia. Compared with the same household in Saskatchewan, they would pay $1,322 less. (The comparison includes income taxes as well as fuel taxes and provincial sales taxes, which Alberta doesn’t charge.)
While that shows Alberta maintaining an edge over other provinces, it’s almost half of the $3,535 advantage — adjusted for inflation — that existed in 2014 compared with B.C. households. In Saskatchewan, the difference is more than double, at $2,923 per household in 2014. A similar trend exists for households in Ontario, Quebec and Manitoba, and across lower-income brackets. (Similar comparisons in the B.C. government’s budget, which account for child benefit payments, suggest that B.C.’s overall tax burden is actually lower than Alberta’s for a family with a comparable $100,000 income.)
The gap widens significantly when comparing the highest income brackets. Where Alberta had a 16 per cent tax advantage over the average Canadian high-income earner in 2014, the difference is now between three and six per cent, Hill said.
The disparity is also evident in annual budget data: For two-income families making over $200,000, when compared with B.C. families, the tax advantage has fallen from a $4,728 in 2014-15 to $4,155 in 2026-27. When compared to Saskatchewan, the advantage dropped from $6,065 per household in 2014 to $5,794 in 2026, as with other provinces like Ontario.
When combining provincial and federal taxes, Alberta’s biggest earners (those earning more than $370,000 per year) pay 48 per cent tax on their income, higher than Saskatchewan’s 47.5 per cent. Ontario and British Columbia are both 53.5 per cent.
The difference with U.S. states is greater still: Where Alberta’s flat tax had previously made it the lowest-tax jurisdiction in North America for high earners, it is now far above Wyoming, Texas and Arkansas, where combined federal and state taxes total 37 per cent.
“When you take into account North America jurisdictions that Alberta is actually competing with, like other oil and gas jurisdictions, the advantage is significantly deteriorated, and in certain cases, like with personal income taxes, it’s just completely vanished,” Hill said.
It’s those higher income earners that tend to invest capital and drive economic growth, Hill said, meaning that increased tax burdens on those brackets tend to restrict growth.
Marisa Warner, spokesperson for Alberta Finance Minister Nate Horner, said that Alberta maintains low income taxes supported by a strong job market and high wages.
“By keeping corporate and personal income taxes low, Alberta is building opportunities, supporting jobs, and putting more money back in people’s pockets,” she said in a statement to the National Post.
It was former Progressive Conservative leader Jim Prentice who first proposed eliminating Alberta’s flat tax system in his 2015 budget. Two months later, Rachel Notley’s NDP government ousted Prentice, and eventually introduced its own progressive tax system, raising the top rate from 10 per cent to 15 per cent. Notley also nudged corporate taxes up from 10 per cent to 12 per cent.
As with Klein, the Prentice and Notley governments were both facing a fiscal reckoning — this time, the 2014 oil market crash. Rather than cut spending to reign in finances, however, both favoured an approach that would systematically unwind the austerity of the Klein years.
After Notley, former premier Jason Kenney introduced a “Job Creation Tax Cut” that slashed corporate tax rates from 12 per cent to eight per cent, immediately restoring a significant advantage to the province. His government also floated a return to the flat income tax, but never enacted it. Smith, for her part, has promised not to raise taxes and last year reduced income taxes for people earning less than $60,000, from 10 per cent to eight per cent.
Hill said that such measures have only gone a small way toward restoring Alberta’s fiscal fortunes, however. Unlike others, Hill is resistant to introducing a provincial sales tax — a recommendation that economists dependably promote every time Alberta’s budget dips into the red.
“It’s a spending problem, not a tax problem,” she said. “If you’re looking at tax revenue as a share of the economy, Alberta is collecting more today than it has historically.”
Stockwell Day, who was serving as finance minister under Klein in the early 2000s, said the flat tax policy was based on the fundamental belief that taxes are a “necessary evil” that should burden citizens as little as possible, and should be applied equally to all people.
“Ralph Klein had great instincts, and he just said: ‘We have to stop expropriating money from people. We have to get it out of our heads that taxation is some kind of a divine power,’” Day said.
While current governments might share Klein’s attitudes in theory, they have neglected to reduce that tax burden in the face of volatile oil and gas royalties and rising program costs.
In her last budget, Smith’s government hiked its “education property tax,” which it expects will give it another $600 million in revenue. The City of Calgary claimed that was equal to a 21 per cent tax hike on a single-family home with a median value of $706,000, costing families an extra $338 per year.
Klein, by comparison, had cut property taxes 10 per cent. As the premier famously quipped at the time: “The only way taxes are going is down.”
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