Sales, carbon tax needed to counter Alberta’s ‘rapid’ fiscal deterioration, business council says

Click to play video: 'Alberta premier shuts down idea of a provincial sales tax'
Alberta premier shuts down idea of a provincial sales tax
Premier Jason Kenney said this is the worst possible time to consider a provincial sales tax, after the Business Council of Alberta released a policy paper that recommended Alberta implement an eight per cent HST as a measure to balance the books. – Feb 17, 2021

A new report from the Business Council of Alberta says the province has expense and revenue problems.

“We spend too much, and we don’t bring in enough, and the reality is we’re not going to solve that problem by tackling either/or,” Adam Legge, president of the Business Council of Alberta, told Rob Breakenridge on Global News Radio 770 CHQR on Wednesday.

The 21-page BCA report released Wednesday endorses much of the cost-savings the MacKinnon panel produced in its 2019 report. But it also advocates for the adoption of an eight per cent harmonized sales tax (HST) and the reintroduction of a provincial carbon tax of $50/tonne to increase the province’s revenues.

Story continues below advertisement

The BCA, a non-profit, non-partisan group of 90 chief executives from across Alberta, said the province cannot count on resource revenues to maintain a fiscally sustainable future.

The paper shows that in four of the past five years of provincial spending, the gap between spending and income has been financed with debt.

While Alberta’s debt as a percentage of GDP remains low compared to other Canadian provinces, “the issue is the of trajectory, not level,” the report reads.

“No province has seen as rapid a deterioration in its net fiscal position as Alberta.”

Legge said that highlighted the need to look at the side of the ledger the MacKinnon report didn’t address: revenues.

Story continues below advertisement

“It’s not right-sized for the 21st century,” Legge said.

“It’s not right-sized for a very different natural resource sector than we’ve had in previous decades, and so it’s time to look at how do we reimagine it so that we create something that is more stable, more certain, more competitive and more equitable.”

Click to play video: 'Oil and gas industry forecasts small spending rise after slashed budgets in 2020'
Oil and gas industry forecasts small spending rise after slashed budgets in 2020

Trevor Tombe, associate professor of economics at the University of Calgary, described sales taxes as “efficient” when compared to corporate or personal income taxes.

Financial news and insights delivered to your email every Saturday.

“The case for Alberta to think about a sales tax was strong even prior to COVID-19 and was prior to oil prices declining over the past few years,” Tombe told Global News, pointing to the province’s aging population and structural trends in the oil and gas industry.

Story continues below advertisement

He also backed the BCA’s call to reintroduce the carbon tax, allowing the province and not Ottawa to decide how that is spent.

Tombe said a five per cent sales tax — combined with a carbon tax — would bridge the fiscal gap — a prospect Tombe estimates the economy can bear while retaining competitive tax rates.

“In that case, Alberta would remain the lowest tax jurisdiction in the country,” Tombe said.

But don’t expect a sales tax to be declared in the Alberta legislature during the spring budget on Feb. 25.

Click to play video: 'Business Council of Alberta recommends provincial sales tax, carbon tax to counter fiscal deterioration'
Business Council of Alberta recommends provincial sales tax, carbon tax to counter fiscal deterioration

Alberta Premier Jason Kenney said the coronavirus pandemic would be the “worst possible time” to introduce a sales tax, instead saying the spring budget will focus on economic growth.

Story continues below advertisement

“I’ve always said we’re never going to cut our way out of the big deficit we inherited,” Kenney said Wednesday. “We have to be more efficient, and you’ll see that in the budget but we must grow Alberta’s economy.”

Duane Bratt, a political science professor at Mount Royal University, said the province needs “a serious discussion around sales taxes.”

“That conversation, a serious conversation, needs to occur about (sales taxes) because if you don’t like the plan that has been laid out by the business council, what are your alternatives?”

To Bratt, there are three alternatives: maintain the status quo of running up deficits, continue with more and deeper spending cuts or hope for another boom in the oil and gas sector.

“I don’t think (any) of those are feasible options,” Bratt said.

The BCA report said the province’s deficit would be a small portion of its current size if Alberta brought its spending and revenues closer in line with other provinces.

Story continues below advertisement

“All told, if Alberta collected as much revenue and spent as much (per person) as the average of the other nine provinces, the provincial deficit in 2019-20 would have been only $2 billion instead of $12.2 billion,” the report reads.

Tombe said a “wise approach” for implementing a sales tax would be “one that focuses on the longer term.”

That’s part of the advice the research fellow at the U of C’s School of Public Policy had for the provincial government when considering implementing a sales tax for the first time since 1937.

Click to play video: 'Southern Alberta municipalities rally against funding cuts'
Southern Alberta municipalities rally against funding cuts

“Take a longer-term perspective, plan for the future, model this out in a transparent and public way, and think about what fiscal policy choices will be needed after the COVID dust has settled and is long behind us. That allows us to be prepared for the much bigger fiscal challenges ahead, primarily from an aging population,” Tombe said.

Story continues below advertisement

On Wednesday, Kenney did not rule out a sales tax in the future. He did point to a promise the United Conservative Party made about tax reform leading up to the 2019 election.

“We ran on a commitment to create a tax reform panel to give Albertans advice on the best possible pro-growth tax policy for the province, and we will move forward with that commitment later towards the end of our term, hopefully long after we’ve gotten past the current crisis,” Kenney said.

For Bratt, the fact that the BCA and its member businesses are calling for a harmonized sales tax and a provincial tax is “most significant.”

“Having a business group of the largest companies in Alberta — the Suncors and the TransAltas and the WestJets — arguing for tax increases, I think, shows the seriousness of this discussion,” he said.

Sponsored content