Inequality in Alberta: Income Distribution in Canada’s Wealthiest Province

Scarlett Jones

A recently released Statistics Canada report has revealed that the top ten per cent of income earners in Alberta took home 50.4 per cent of total income in 2012 – making it the only province to be more unequal than the United States, where the top ten per cent take home 48.2 per cent. Likewise, the province’s GINI coefficient — a measure of income distribution — is the highest in the country. But with low unemployment, high labour market participation rates, and the highest median after-tax income in Canada, why is inequality so rampant in Alberta? Do all boats not rise in an oil tide?

Income gains have disproportionately benefited the top one per cent in the province: from 1982-2011, the income of the bottom 99 per cent increased by 13 per cent, compared to 93 per cent growth among the top 1 per cent of earners. The bottom three deciles of the population were also hard hit by the 2008-09 recession, in which they saw income decline by 10.0-19.1 per cent.

At 12 per cent, poverty rates in Alberta may be considered low; however, the poverty gap (the shortfall below the poverty line) is high. Alberta’s poor are among Canada’s poorest. The most economically marginalized groups in the province — women, Aboriginals, recent immigrants, single-parent families — are depressingly predictable. For example, Albertan women working full time make only 68% of what the income of their male counterparts. The numbers are even worse for university-educated women, whose earnings were 63 per cent of males’ — marking the largest gender wage gap in the country.

Even more worrisome is that individuals who fail to succeed in the labour market have little by way of a social safety net to fall back on. Despite the economic boom of recent decades, social assistance payments in Alberta have fallen. In 2012, welfare payments for a single parent family with one child were only $16,333, down from $18,292 two decades prior.

The economic marginalization of Alberta’s most vulnerable populations and increasing inequality across the province can be attributed in part to this erosion of social safety nets over time. It is also linked to diminished investment in public services, as well as long-standing regressive tax policies and pro-austerity fiscal policies.

Not only does the province have no sales, payroll, capital tax or health premiums, it is also the only province with a flat-rate income tax (currently at 10 per cent). Alberta’s Treasury Board website proclaims that:

“If Alberta employed the tax system of any other province, Albertans and Alberta businesses would pay at least $11.6 billion more in taxes each year.”

Ironically, an 11.6 billion increase in revenue is just what Premier Jim Prentice’s Conservative government needs, with predicted revenue losses of up to 7-billion for this year.

The Alberta government relies almost exclusively on non-renewable resource royalties, which are among the lowest among oil-producing jurisdictions — ensuring a dangerous dependency on the global commodity market. The province’s uncontrolled spending of the resource royalties it does collect is in many ways the equivalent of blowing a windfall inheritance. Or, as economics reporter Eric Reguly has noted, Alberta:

“Was just greedy and decided that a drunken, blow-out dance party today was better than a string of candle-lit dinner parties down the road.”

When compared with other oil rich jurisdictions, the picture only becomes more dismal. Norway’s royalty investment fund, established in 1990, is now worth $905 billion. Alberta’s Heritage Trust Fund, the Albertan equivalent established in 1976, is worth a mere $17.5 billion — and no new royalty revenue has been added to the fund since 1987. And Norway is not alone: the United Arab Emirates’ funds are valued at more than $800 billion; Kuwait’s at around $400 billion; and Russia and Kazakhstan have each accumulated about $180 billion.

Strong labour market outcomes alone cannot prevent inequality from setting in, nor is dependence on a non-reliable revenue source sustainable. Alberta must increase and stabilize revenue by establishing a progressive, scaled income tax system, increasing corporate taxes and royalties, and by considering a harmonized sales tax. It should also return to the recommendations made by the Premier’s Council for Economic Strategy in 2011, of move towards financing 100 per cent of operational spending with current revenues (with all oil and gas royalties flowing into savings).

A steady source of revenue will make Alberta less vulnerable to boom and bust cycles and will consequently reduce financial instability in the middle and lower classes. It will also allow the provincial government to plan ahead with social investment programs that make a difference, rather than ones that are implemented with no effect — such as Alberta’s five-year plan to end child poverty.

Yet the greatest challenges to fiscal and social policy reform in Alberta are likely to be a long-standing pro-oil mentality, as well as industry sway. The oil industry has seen previous success in forcing royalty rates down. In 2007, the Alberta Royalty Review found that Albertans do not receive their fair share from energy development, and recommended a 20 per cent increase (or 2 billion dollars per year). While the provincial government partially implemented the Review’s recommendations, it later rolled them back in 2010 following pressure from the sector.

Even in the best of economic times, Alberta’s fiscal and social policies are serving to marginalize the province’s most vulnerable populations, and to intensify inequality and poverty. With the economic outlook now worsening, the consequences will likely become more widespread. Falling oil prices will lead to lost jobs that households with high debt levels will be unable to sustain, and in a province with a weak social safety net (and in which the government has no reliable source of income), this could prove disastrous. Yet just last week the premier reaffirmed that he will not be raising taxes – and the band played on.

Scarlett Jones is a 2016 Master of Public Policy candidate at the University of Toronto. She holds a Bachelor’s degree in English literature from the University of British Columbia, and has previously worked as an editor and translator for the Instituto Politécnico Nacional research centre in Oaxaca, Mexico. Her academic interests include immigration and foreign policy and transnational migration.