Most economists agree: The smart move for Alberta, currently in deficit and perpetually dependent on fickle oil revenues, is to join every other Canadian province in imposing a sales tax. It would encourage saving, among its benefits. But most important, it would provide some fiscal ballast to a province forever beset by the boom-bust cycle of the global oil market.
There’s just one problem. In Alberta, the joke runs, PST stands for something other than it does in the rest of the country. Not “provincial sales tax,” but “political suicide tax.”
Grim, but fair. Politicians can do math, at least of the electoral kind. And the math is clear: A 2015 poll found about three-quarters of Albertans were opposed to the idea.
The last Alberta premier to try a sales tax was William Aberhart, an eccentric radio evangelist and Social Credit leader who came to power during the Great Depression. The tax lasted a year.
Now, politicians who moot a sales tax in Alberta do so gingerly. NDP Premier Rachel Notley captured the general attitude of Alberta’s political class towards the subject. “In the long term, is this a conversation we need to have?” she said in 2016. “I think it is. But not right now.”
The punt was typical. But the province’s wonks see no reason to wait. The idea has uncommonly broad support among policy thinkers on the right and left in Alberta.
The conservative economist Jack Mintz, an expert on tax policy at the University of Calgary, is the most vocal proponent. But the left-leaning think tanks Public Interest Alberta and Progressive Economics Forum back the concept, too.
Outside of Alberta, in fact, sales taxes are considered a pretty right-wing way to raise revenue, since they’re “flat” and disproportionately affect the poor, who generally spend a bigger proportion of their income.
But they also have a range of benefits that would make them a particularly good fit for Alberta.
Sales taxes encourage saving and discourage spending. For the province with Canada’s highest levels of household debt, that can’t be a bad thing.
And though there’s some academic disagreement on this point, sales taxes are often a more stable source of revenue than income taxes. In a downturn, the base for a sales tax doesn’t change much, because everyone remains a consumer, whereas job losses and pay cuts dramatically bite into who pays income tax and at what bracket. Needless to say, stability is a nice quality when your economy is tied to oil prices.
Taxing retail sales would also get back some of the estimated $800-million in tax revenue from tourists and out-of-province workers that Alberta forgoes every year – a missed opportunity for a province that attracts so many Canadians from other parts of the country.
So how much would an Alberta sales tax actually raise? Probably about $1-billion per point of tax, according to conservative estimates. That means an eight-per-cent sales tax – which is what Ontario currently has, albeit harmonized with the federal GST – would bring in $8-billion a year.
That would virtually wipe out Alberta’s projected deficit for 2018-19 if the province did nothing with the money but spend it on current programs and obligations.
Of course, opinions differ on what to do with the money. The Mintz plan involves slashing corporate and personal income taxes. (He also calls for harmonizing an Alberta sales tax with the GST – an efficient, fair and business-friendly approach.) The NDP would no doubt spend some of it on new social programs. Probably the most politically tricky but wisest course would be to use sales-tax revenue to top up the province’s depleted and mismanaged rainy day fund.
In any case, having a steady stream of money would allow Alberta to have a proper debate about how to run its finances, rather than finding the coffers flush when oil prices are high and barren when they are low.
That approach is hardly a grown-up way for a large, rich economy to govern itself. Alberta has many gripes with the rest of the country about how its oil sector is treated. Some of them are justified. But the province could do itself a favour by getting its own books in order before playing the victim.
Yes, a sales-tax referendum (required by law) would lose if it was held tomorrow, and lose badly. But it’s time for Alberta’s leaders to talk candidly with the electorate about what many of them know to be true: A sales tax is the best way to put the province on a sound fiscal footing.