This year, Alberta is one of only two province in Canada, aside from New Brunswick, to project a balanced budget. In fact, the province is projecting billion-dollar surpluses over the next two fiscal years: $1.4 billion in 2025/26 and $2.6 billion in 2026/27. The province deserves credit for avoiding the deficits that have burdened other provinces. However, this good fiscal management is also an opportunity to address the ongoing affordability crisis burdening residents and small businesses in the province.
State of small business in Alberta
A recent CFIB survey found that 40% of Alberta small businesses report being in weak (31%) or critical (9%) financial health. The source of these difficulties come from a variety of factors but two costs stand out prominently in CFIB’s July 2024 Business Barometer: Tax and regulatory costs, and insurance costs. Tax and regulatory costs were the top cost constraint for Alberta small businesses, with 79% citing it, the most since before the pandemic in 2019. Additionally, 74% cited insurance costs as a significant constraint, more than any other province besides New Brunswick.
More Alberta small businesses report weak rather than strong financial health
Source: CFIB, Your Voice omnibus survey – April 2024, was conducted online April 4-22, 2024. A total of 357 CFIB members who are owners of Alberta independent businesses, from all sectors and regions of the province answered the question above. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of +/-5.2%, 19 times out of 20.
Question: How would you describe the overall financial health of your business right now (e.g., cash flow, debt levels, revenues and profitability)? (Select one)
Alberta’s budgetary capacity for tax reduction
With surpluses projected to reach billions in the coming years, the Alberta government is in a position to provide cost relief to small businesses through lower taxes. The government has already committed to tax reduction for residents: planning to create a new personal income tax (PIT) rate of 8% for income up to $60,000, which is currently taxed at 10%.[i] While, this measure can help boost the economy through higher consumer spending, it is crucial to also directly address the affordability crisis facing small businesses.
Building on the call for tax reductions as a solution to ease the cost burden for small businesses, a recent survey revealed that 60% of Alberta small businesses want the province to use surplus funds to reduce taxes, while 65% prioritize paying down public debt.[ii] The province’s budget surplus next fiscal year is expected to be over $1.4 billion. This substantial surplus provides Alberta with the flexibility to reduce taxes while maintaining significant reserves for initiatives like paying down the debt. But just how much can the province afford to cut?
According to their most recent budget, the new PIT bracket is scheduled to begin its phase-in during the 2025/26 fiscal year, with full implementation in 2027/28. Even after accounting for the cost of reducing personal income taxes, the Alberta government can continue to benefit from continued surpluses of over $1 billion in the coming fiscal years, leaving substantial room to cut taxes for small businesses.
Even after the introduction of a new personal income tax bracket, the Alberta government can maintain a large budgetary surplus in the coming years
Source: CFIB analysis of Alberta budgetary data, own calculations. See Alberta tax reduction report for more details
Note: Due to an absence of available projections, the initial surplus before the implementation of the new PIT bracket for fiscal year 2027/28 is assumed to be equal to the 2026/27 fiscal year.
Reducing taxes to address affordability for small businesses
In terms of where tax cuts would most benefit Alberta businesses, two taxes stand out: the small business corporate income tax and insurance premium tax (IPT). The former is a 2% rate applied to business income up to $500,000, and the latter is a 4% tax on insurance premiums for all policies except life, sickness, or accident, which artificially raises the cost of insurance for both businesses and residents in the province.
Compared to the costs associated with the decrease in personal income taxes, the costs of reducing corporate income taxes would be significantly lower. For instance, reducing the small business tax rate by half (1 percentage point decrease) would cost the government $161million, just 12% of the $1.4 billion required to create the new PIT bracket. Similarly, reducing the 4% IPT rate by half would cost $414 million, just 30% of that amount. In fact, reducing both these tax rates by half would still leave Alberta with surpluses of $745 million in 2025/26, $1.2 billion in 2026/27 and $666 million in 2027/28, ensuring a sizeable cushion for unexpected revenue fluctuations caused by factors like the price of oil and gas.
Alberta government can afford to cut tax rates given surplus position
Budgetary position of the Alberta government if the small business tax rate and IPT tax rate were both reduced by half (millions of dollars)
Source: CFIB analysis of Alberta budgetary data, own calculations. See Alberta tax reduction report for more details
Note: Due to an absence of available projections, the initial surplus before the implementation of the new PIT bracket for fiscal year 2027/28 is assumed to be equal to the 2026/27 fiscal year.
Reducing the small business tax rate by half would bring Alberta more in line with Prince Edward Island, whose tax rate is just 1% and Manitoba which is the only province to have a 0% small business rate. This reduction would deliver almost $500 million in tax savings to small businesses in Alberta according to CFIB’s analysis of Alberta budgetary data. Further, reducing the IPT tax rate would decrease insurance costs in the province, easing the cost of insuring property for both small businesses and residents. The savings from these tax cuts for business owners would help boost the Albertan economy. Over half (60%) of Alberta small businesses indicate they would use the savings to increase employee compensation, 43% would expand their business, and 28% would lower prices, helping offset high inflationary pressures.
Alberta small businesses would use tax cut savings to boost employee compensation, expand operations, lower prices, among other actions which would help boost the Alberta’s economy
Source: CFIB, Your Voice omnibus survey – June 2024, was conducted online June 6-19, 2024. A total of 243 CFIB members who are owners of Alberta independent businesses, from all sectors and regions of the province answered the question above. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of +/-6.3%, 19 times out of 20.
Question: If governments at any level were to reduce the overall burden of taxes and fees, what would your business do with the savings? (Select all that apply)
Considering its strong budgetary surplus, CFIB recommends the Alberta government lower or eliminate both the small business tax and insurance premium tax to address the affordability crisis for small businesses and stimulate the economy. Additionally, CFIB recommends the government follow through on its commitment to create a new 8% tax bracket on the first $60,000 of income. Doing so will deliver savings when Albertans need them most, while maintaining a healthy fiscal position.
[i] Government of Alberta (2024) 2024 – 2027 Fiscal Plan.
[ii] CFIB, Your Voice Survey – November 2023, November 2 – 16, AB n =427.
