Max Fawcett is a freelance writer and the former editor of Alberta Oil magazine and Vancouver magazine. He previously worked in Alberta’s Climate Change Office.
Jason Kenney promised his supporters that if he were to become premier of Alberta, he’d fight back against the province’s enemies, real and perceived, and so far, he’s delivered on that. With a $30-million “war room” in place and a public inquiry into foreign-funded criticism of Alberta’s energy sector on the way, Mr. Kenney has the province in a much more aggressive posture than his predecessor. But if he really wants to strike a blow for Alberta and its future, he should take on the biggest enemy of all: its shared aversion to a sales tax.
Back in the early 2000s, when the province’s oil and natural gas sector was humming along, Alberta’s lack of a sales tax was a curious anachronism. But it worked because provincial services have been supported by natural-resources revenue, which made up between 25 and 40 per cent of Alberta’s total revenue in the mid-2000s. Today, those revenues are a small fraction of what they were. Over the past few years, oil and gas royalties have routinely sat below 10 per cent of total government revenue, and as low as 5.7 per cent in 2016
That, combined with an increase in government spending, has caused the once debt-free province to rack up more than $60-billion in debt in recent years. As former Saskatchewan finance minister Janice MacKinnon noted in the very first line of her blue-ribbon panel’s report: “Alberta faces a critical financial situation that demands decisive action.”
As Mr. Kenney demonstrated in his Oct. 24 budget, that action will begin with deep spending cuts to a variety of government departments and programs. Those include a 5-per-cent reduction to Advanced Education’s budget, a 7.7-per-cent decrease in the size of the public service, a nearly 15-per-cent cut in funding to municipal infrastructure and a three-year delay on the construction of a new hospital in Edmonton.
But it’s the revenue side that really needs the help, and Albertans need to stop hoping for another oil boom and wake up to the 21st-century reality that they may never get one.
The rise of U.S. shale producers has flooded both the natural gas and oil markets with low-cost supply, while the combination of renewable energy and an ever-expanding global fleet of electric vehicles threatens to start chewing into the demand for hydrocarbons very soon. This combination of surging supplies and faltering demand does not bode well for the province’s energy sector – or the tax revenues it has historically generated.
The only solution, then? An economywide sales tax that can’t be kicked down the line any longer. First and foremost, it would fill the revenue hole that falling oil and gas prices have blown in Alberta’s budget. But it would also help Alberta collect revenue from both tourists and the thousands of people who come to Alberta to work in its oil and gas industry (and use the province’s roads, airports and hospitals) but still pay their provincial taxes to governments in places such as Newfoundland and Quebec. And because sales taxes as a share of total income tend to rise with age, implementing one would be a more intergenerationally equitable way to fund the healthcare costs of an aging population.
If the United Conservative Party government were to implement a large enough sales tax in the future, it could also use the proceeds to cut other taxes – ones that might actually attract the kind of new investments that the province needs. For example, according to a 2013 study co-authored by Calgary-based economist Jack Mintz, an 8-per-cent sales tax would allow Alberta to triple the basic personal amount – thereby removing the majority of families from the provincial income tax rolls – and still generate enough revenue to lower personal income tax rates by one point and corporate taxes by one and a half. Now that would be an Alberta advantage.
So why hasn’t anyone tried to make this happen? Because decades of anti-sales tax posturing have turned a foundational element of fiscal policy into a part of Alberta’s shared identity, and made it nearly impossible for anyone to challenge the status quo as a result. There’s a reason why the PST acronym also means “political suicide tax” in Alberta, and it explains why Mr. Kenney’s predecessors have steered clear of the idea. Even Rachel Notley’s government, which wasn’t exactly averse to raising or implementing taxes, dismissed the idea. “The causes of Alberta’s failure to face up to its fiscal problems are many,” says Robert Ascah, a fellow of the Institute for Public Economics at the University of Alberta who co-wrote an alternative blue-ribbon report for the Parkland Institute in September. “But chief among them is a failure of political leadership.”
If he wants to, Mr. Kenney can provide that leadership. Indeed, he might be the only premier since Ralph Klein who could. He enjoys a degree of support and supply of political capital that leaves him uniquely equipped to survive the allergic reaction that would meet the introduction of a PST. And just as Richard Nixon was the only U.S. president who could go to China, so too is Mr. Kenney the only Alberta premier who might be able to overcome the province’s hostility towards a sales tax. If he does, he’d leave a more durable and defining legacy than any Alberta premier since Peter Lougheed. The only real question, ironically, is whether he’s willing to fight for it.