Alberta Premier Jason Kenney says that despite his province’s deep fiscal hole, he has no intention of proposing a provincial sales tax in this Thursday’s budget. “This would be the worst possible time” for such a measure, he said last week.
He’s right. But the current crisis shouldn’t be an excuse for keeping your head in the sand. Alberta needs a provincial sales tax – if not now, then soon. And the postpandemic recovery might be an opportune time to finally face that reality.
Mr. Kenney made his comments in response to a report published last week by the Business Council of Alberta, which argues the province needs to fix its badly broken revenue structure. One of the council’s key recommendations is that the province adopt a retail sales tax – which Albertans have long and proudly rejected, even though every other province has had one for decades.
Alberta could afford that luxury as long as its ample royalty revenue from oil and gas production paid the bills. That’s no longer the case, and hasn’t been for more than half a decade. Even as oil prices now recover to prepandemic levels, the longer-term outlook is tilted to the downside, as the world looks increasingly to reduce fossil fuel consumption. The revenue riches the province enjoyed in the early 2010s may be gone forever.
But the problem is not just that resource royalties have shrunk; they are also notoriously unstable, and always were. As the report notes, most years in the past two decades, the province’s royalty revenue swung up or down more than $1-billion; eight times in those 20 years, the swing has been more than $3-billion. That’s dreadful for fiscal planning – particularly for a government that says it wants a long-term investment strategy to foster economic growth, as Mr. Kenney talks about.
Consumption taxes, by contrast, are a particularly stable and reliable revenue source, which is exactly what Alberta needs to shore up its increasingly unsustainable finances. University of Calgary economist Trevor Tombe has estimated the province could bring in $1-billion in revenue for every one percentage point of a provincial sales tax; that’s equivalent to the impact of about a US$3-a-barrel change in oil prices. He figures that a 5-per-cent tax, which would be the lowest in the country, would on its own eliminate about half of Alberta’s structural deficit.
That would, nevertheless, represent a tax increase – not an easy thing at the best times for any government, and these are not the best of times. But if the province opted to make a sales tax largely revenue-neutral – by cutting taxes and fees elsewhere to offset the new tax – it would at least provide a much more stable tax base on which the province could build.
There may even be a way to devise a sales tax as, effectively, a flexible tool to fill in the revenue gaps inherent to resource royalties. What if, say, Alberta budgeted for royalty revenues based on a relatively modest oil price, and delivered sales tax rebates equivalent to any resource-revenue windfall above that level? Something like that could appeal to Alberta voters still willing to bet on the oil and gas industry.
Still, given the long-standing unpopularity of a sales tax in Alberta, it’s always a tempting can to kick down the road – and Mr. Kenney’s foot looks to be twitching. The Premier said last week that he remains committed to setting up a panel on tax reform, but he will wait until “later, toward the end of our term.”
That could mean another two years before the province turns its attention to its long-term revenue issues, including the question of a sales tax. Mr. Kenney has also said that he wouldn’t impose a sales tax without holding a referendum on the question – which would delay the possibility of such a tax even further.
While there is a sound argument behind not raising taxes in a recession, there’s little logic behind foot-dragging on formulating a plan to repair something that was so clearly broken long before the pandemic. Indeed, the crisis has magnified the problem to the point that even the most willfully nearsighted of Albertans must see the writing on the wall. Now may actually be an unusually good time to broach the discussion.
In an e-mail last week, Prof. Tombe suggested that there may actually be an advantage to phasing in a sales tax as the economy enters recovery, if its implementation is signalled in advance. That would create an incentive for consumers to spend the savings that many of them have built up during the pandemic – especially on big-ticket durable goods such as cars and appliances – in order to beat the tax. The result would be an acceleration of consumption that would add juice to the recovery phase.
There’s no sense in waiting for some imagined perfect time that may never some. Frankly, this is already long overdue.
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