Employment & Unemployment,  Inequality,  Macroeconomics,  Research

The Failures of ‘Trickle-Down’ Economics in Alberta

Since its election in 2019, the current provincial government in Alberta has emphasized a classic ‘trickle-down’ economic strategy. It argues that by boosting profits of private business, capital investment will grow, and job-creation, rising incomes, and economic growth will then ‘trickle down’ to the rest of the population.

The key elements of this business-focused strategy (consolidated under the moniker of the ‘Renewed Alberta Advantage’) include relaxed business regulation, a four-year freeze in the provincial minimum wage, privatization of public services, and a one-third cut in the provincial corporate income tax rate (from 12% to 8%).

Those policies are now being debated in the provincial election campaign. For example, the NDP has proposed a partial reversal of the corporate tax cut: lifting it to 11%, still the lowest in Canada. Business leaders and conservatives have responded with dire warnings that corporations would then flee the province, taking investment and jobs with them.

To evaluate these dark predictions, it is important to examine whether the trickle-down strategy delivered any of its promised benefits in the first place. In a new research report (jointly published with the Alberta Federation of Labour), Centre for Future Work Director Jim Stanford has compiled official Statistics Canada data for 10 different economic indicators, comparing Alberta to other provinces since these policies were implemented after the last election.

Contrary to the promises of trickle-down advocates, Alberta’s economic performance has badly lagged other provinces. In fact, by most of the indicators surveyed, Alberta has ranked dead last among provinces since the implementation of these policies beginning in 2019.

For example, business capital spending did not increase under the lower tax rate. When the tax cut began in 2019, business non-residential capital spending weakened. It then plunged further in 2020, when the lower rate was fully phased in, and has remained weak despite the re-opening of the world economy and surging oil and gas prices.

Non-residential fixed capital spending totaled just $45 billion in 2021, almost 20% lower than 2018. That equaled 12% of provincial GDP in 2021 – the lowest since Statistics Canada began publishing provincial GDP data in 1981. Preliminary data suggests the investment share declined further in 2022, to just 11% of GDP. Alberta’s share of Canada-wide business spending has also declined to historic lows since taxes were cut: falling to 21% in 2022, from 24% in 2018.

It’s not just business investment that performed poorly over the last four years. By several other economic metrics, Alberta has badly underperformed other provinces.

In sum, it seems that trickle-down economics has been more focused on redistributing the economic pie, not growing it. Profits have surged to record levels – the only metric on which Alberta outperforms the rest of the country. Unfortunately, the flip side of that unprecedented corporate success has been the erosion of real living standards for most people. 

Please see Jim Stanford’s full report, The Failures of Trickle-Down Economics in Alberta.

Jim Stanford is Economist and Director of the Centre for Future Work. He divides his time between Sydney, Australia and Vancouver, Canada. Jim is one of Canada’s best-known economic commentators. He served for over 20 years as Economist and Director of Policy with Unifor, Canada’s largest private-sector trade union.