Introducing a sales tax – a topic long considered verboten in Alberta – to solve the government’s financial woes dominated the province’s first economic summit Saturday, but Premier Alison Redford remains cool to the idea – at least for now.
Unlike other provinces, Alberta has never had a provincial sales tax and legislation forbids the introduction of one without a referendum. But the province is dealing with a $6-billion oil and gas revenue shortfall - something that prominent economists, academics and business leaders suggested could be easily fixed with a “consumption tax.”
But Ms. Redford told reporters after the event in Calgary that she is neither contemplating a sales tax nor a referendum on the issue.
“I don’t think we’re anywhere near that at all,” she said, “I think that the fact that people are beginning to think about it and talk about it as an idea is a really important thing. Ideas are important, but no need to jump the gun on that.”
Speakers on four panels discussed the province’s economic fate, but Ms. Redford said nothing that she heard will affect the next budget due on March 7. Instead, it is part of a larger conversation about the future of the province, she said.
Alberta is among the top-spending provinces in Canada, is debt-free and along with no sales tax, has a flat income tax rate of 10 per cent. The formula works because they get billions in windfall revenue.
However, that revenue is dropping. The price paid for Alberta bitumen, the “differential,” has widened as compared to international benchmark oil prices. It means Alberta is currently receiving just over $70 per barrel for its oil. It had budgeted for $86.
George Gosbee, and investment banker and president and chief executive officer of AltaCorp Capital, suggested while there should be no major cuts to government services in order to keep up with the province’s growth, he suggested new taxes.
“We have a revenue problem,” he said, adding that Alberta’s reliance on revenue royalties needs to be reduced.
He called for a 5 per cent consumption tax, which he dubbed the “DST – the differential sales tax,” that could be adjusted as the province benefits from new pipelines and a price rebound.
Mr. Gosbee also called for the return of health care premiums, which the Stelmach government did away with, and cost the province about $1-billion in revenue. Taxpayer groups have called the premiums a “regressive tax” and applauded when they were eliminated.
Joseph Doucet, interim dean of Stanley A Milner Chair in Leadership at the University of Alberta’s school of business, also advocated for a sales tax. As did Jack Mintz, chair of the school of public policy for the University of Calgary.
Prof. Mintz called for a wholesale reform of the tax system in Alberta, including the eventual elimination of personal income taxes – currently a 10 per cent flat tax - and the introduction of a sales tax through an HST.
“Not having a sale tax is a disadvantage in today’s global economy,” he said. “…It is in my view a slam dunk case.”
He cited Texas, which has a 6.25 per cent sales taxes, which has helped the state diversity its economy and enjoy less volatility in revenue. He suggested it could generate more than $8-billion – with a portion returned to low income Albertans and reduce income taxes.
“In my view, Alberta does not have a revenue problem. Alberta has a spending problem,” he said, pointing to spending far outstripping growth.
But Gil McGowan, president of the Alberta Federation of Labour, warned about Klein-era hefty cuts to spending.
“Haven’t we learned anything at all? We’ve seen this movie and it’s a horror story,” he said.
Leo de Bever, chief executive officer of Alberta Investment Management Corporation, was also among those who agreed with the introduction of a consumption tax to support revenue, but added that borrowing should also be considered. He said interest rates are so low right now that Alberta would be “foolish” not to finance some of infrastructure needs.
The recent fall in fortunes – the widening differential – is largely because Alberta has one customer for its oil, the United States, and is in no position to demand the higher world prices for its oil. Ms. Redford has pointed to the discount in pressing for new pipeline projects, so as to allow Alberta to sell its oil to other countries – namely, emerging markets in Asia.
“It is incumbent upon us to make sure we get the highest value for the citizens of this province and the citizens of this country,” said panelist Peter Tertzakian, chief energy economist and managing director of ARC Financial Corp. He said, to applause Saturday morning, Alberta’s priority must be reaching new markets. “This problem is controllable. We can do something about it,” he said.
Finance Minister Doug Horner said falling revenue projections are forcing Alberta to consider, as it has before, how to wean itself off a reliance on oil and gas revenue.
“This summit is about keeping that conversation going and keeping our focus on what is really the end goal – ensuring we’re the province we need to be 20 years from now,” Mr. Horner said in his opening remarks.
Official Opposition Leader Danielle Smith of the Wildrose Party said she was disappointed to hear how often the forum turned to talk of a “revenue problem” and the solutions being offered amounted to taking out debt or raising taxes. She suggested debt levels could ramp up to $15- to $20-billion and taxes could be hiked by the next election expected in 2016.
“I’m fearful that this conversation today may have paved the way for (new taxes),” she said.
“I don’t think that’s what Albertans want,” she added. “I don’t think that’s what they voted for in the last election.”
Derek Fildebrant, Alberta director of the Canadian Taxpayers Federation, said the government has “no mandate” to increase taxes, warning: “Government don’t tend to get elected very well after introducing sales tax.”
On Saturday, a Calgary Herald report leaked budget information from government sources, which suggested spending would be hiked by a modest 0.6 per cent, well below inflation and population growth, while an operating deficit of $300-million would be posted.
Speaking to reporters, Ms. Redford denied the report and said her government hasn’t finalized the budget, which will be released March 7.
“It’s not information on the current budget deliberations that are going on in government right now,” she said.
NDP Leader Brian Mason called the forum an unbalanced collection of speakers who talked only about hiking taxes and the need for pipelines, but discussed nothing about Alberta’s overdependence on energy royalties or the problem of past tax cuts for corporations and the wealthy.
“[It was] a very interesting experience for me having a look into the Tory universe and seeing what it’s like in there,” Mr. Mason said.
The summit’s first panel was interrupted briefly by Greenpeace protesters, who unfurled a banner reading “Cut royalty breaks, not social services” at the front of the room. The group is pushing for higher royalty rates on oil sands development. The protesters were peacefully escorted away.
The invite-only summit drew as many as 300 people. Roughly another 1,400 watched online Saturday morning, according to Ms. Redford’s staff, and the premier said 72,000 people interacted on Twitter under the #absummit moniker.