The federal Liberals plan to create a new, higher top federal personal income tax rate. This planned tax hike, a major element of last week’s Throne Speech, is of particular concern in Alberta, because it will come on the heels of a recent increase to provincial personal income tax rates. In October, Alberta abandoned its pro-growth single rate personal income tax in favour of a progressive income tax. In the process, Alberta raised the top provincial income tax rate from 10 to 15 per cent, a 50 per cent jump.

Taken together, the provincial and federal increases will cause Alberta’s top combined rate to climb from 39 per cent at the start of the year to 48 per cent. In other words, in a few short months, the combined federal-provincial top marginal income tax rate will have increased by 23 per cent.

Coming on top of the provincial personal income tax increase, a 20 per cent increase to the corporate income tax, and the recent announcement of a substantial carbon tax, the upcoming federal personal income tax rate will put another nail in the coffin of Alberta’s reputation as a low-tax jurisdiction among energy producers.

Making matters worse, the income tax hikes at both levels of government will likely bring in much less revenue than governments expect. That’s because tax-filers—particularly upper-earners—respond to higher rates in a number of ways including reducing their labour supply, incorporating as businesses to take advantage of lower rates, and shifting income to, or perhaps even physically leaving to, lower tax jurisdictions. This can reduce the tax base, meaning that higher rates will be applied to a lesser amount of taxable income. As a result, governments usually receive less additional revenue than they expect. In more extreme cases, it can mean they actually lose revenue.

For these reasons, Finance Minister Bill Morneau recently conceded that the personal income tax increase will bring in significantly less money than the government had previously been expecting. However, despite the economic damage it will cause and reduced revenue projections the government has not backed down from its commitment to create a new, higher top tax rate.

Alberta continues to face significant economic challenges. Rather than make matters worse, governments should implement pro-growth economic policies. Further personal income tax rate hikes will have the opposite effect, undermining competitiveness while reducing investment, savings, entrepreneurship and overall economic growth.

In this difficult economic climate, a higher top federal income tax rate would only make it harder still for Albertans and their families to prosper in the years ahead.