Alberta can’t afford to ignore the Provincial Sales Tax

rat2.jpg.size.xxlarge.promoRat-free, PST-free and Liberal-free” has been a Conservative mantra in Alberta since the reign of Pierre Elliott Trudeau. But is this trifecta now in jeopardy?

The decline of government revenues caused by the drop in the price of oil has once again sparked the discussion around resource diversification and tax increases in Alberta. And with talk of economic doom and gloom, Premier Jim Prentice is managing expectations and preparing Albertans for the upcoming provincial budget and likely a Spring provincial election.

Jim Prentice Premier of Alberta

Jim Prentice

Will the budget include deep funding cuts or tax increases? Under most circumstances, deep budget cuts would be the natural choice for the long-governing Progressive Conservatives, but there is growing speculation that Mr. Prentice could be softening the ground for the introduction of a Provincial Sales Tax (PST) in Alberta.

At a 2013 provincial fiscal summit, economist Bob Ascah suggested that a 1 per cent sales tax could raise $750 million in annual revenue for the provincial government. Diversifying income sources with a five or six per cent sales tax could help soften the blow of the dreaded $7 billion gap that Mr. Prentice has warned will face the provincial budget if oil prices do not increase by next year.

Late last year, Mr. Prentice declared in a speech to the Calgary Chamber of Commerce that he would not consider introducing a PST, but the Premier has changed his tune in 2015, saying that everything is on the table.

This is not the first time PST has been at the centre of discussion in Alberta. Few Albertans may know it, but Alberta did have a two per cent sales tax for a short period ending in 1937.

Alberta Premier Peter Lougheed

Peter Lougheed

In the aftermath of the last major economic downturn in June 2008, when the price of oil dropped from a high of $145 per barrel in July to a low of $30 per barrel in December 2008, PC cabinet ministers like Doug Griffiths openly mused about PST. When prices increased, resource royalties once again poured in provincial coffers and Alberta’s political class moved away from the PST discussion.

Facing a decline in the price of oil in 1984, Premier Peter Lougheed publicly mused about introducing a sales tax, but did not act on it.

The Alberta Taxpayer Protection Act, introduced by Premier Ralph Klein in 1995, states that a referendum must be held before a Provincial Sales Tax can be introduced. The PCs have shown in the past that they have no problem sweeping away old laws like this one. In 2009, the PC government amended their much touted Fiscal Responsibility Act which prohibited deficit budgets in order to pass a deficit budget.

Relying on a boom-bust economy, a real lack of long-term financial planning has been the biggest weakness of the 43-year governing PC Party.

Ted Morton MLA

Ted Morton

The introduction of a PST would be a bold and courageous move – one that could land Mr. Prentice in Alberta’s history books beside statesmen like Mr. Lougheed and Ernest Manning. And while under normal circumstances this would be a kiss of death to a Premier’s political career, we may now be witnessing a once in a lifetime opportunity to introduce a sales tax.

The Wildrose Opposition is both leaderless and in complete disarray, and the opposition New Democrats and Liberals could have a difficult time protesting a move that could majorly diversify the government’s revenue stream. And with the departure of Derek Fildebrandt late last year, the local Tax Outrage Industry is lacking a major spokesperson.

The move also comes with the support of former Finance Minister Ted Morton, a member of the right-wing Calgary School, who recently penned an opinion-editorial in the Calgary Herald calling for a PST. And while he was teaching at the University of Alberta, Mr. Prentice’s Chief of Staff Mike Percy admitted that a “sales tax gives you greater stability.”

Kevin Taft Liberal Party MLA Alberta

Kevin Taft

As reported on David Climenhaga‘s blog, Conference Board of Canada chief economist Glen Hodgson also weighed in on Alberta’s tax dilemma: “Not having a provincial consumption or sales tax is highly popular and has been great politics, but it denies the provincial government a steady and stable source of revenue through the business cycle.”

To get a grasp of how embarrassingly low our tax rates current are in Alberta, Kevin Taft in his 2012 book, Follow the Money, says that Alberta could increase its tax rates by $11 billion and would still have the lowest tax rate in Canada.

Critics will argue that a sales tax would unfairly penalize low income Albertans, and they are right. The government should also scrap the short-sighted flat tax and return to a real progressive income tax system. Alberta is currently the only province with a Flat Tax, the odd-ball brain child of former Treasurer Stockwell Day.

While Albertans look with envy at Norway’s $900 billion petroleum fund, it could be decades before our government imposes meaningful increases in natural resource royalties. The PCs bowed to political pressure from the oil and gas industry and paid a significant political price when trying to implement meaningful increases to resource revenues in the late 2000s.

The strongest opposition to the introduction of a PST may come from inside the PC caucus. Many PC MLAs are said to be unconvinced that Albertans would support a PST, and the presence of 11 anti-tax former Wildrose MLAs in the government caucus could stiffen the opposition from within. Skeptical MLAs would probably be correct that they will receive a blowback from Albertans in the short-term, but the right decisions are not necessarily the most popular when they are initially implemented. And without a credible government-in-waiting, now could be the the only time the PCs could implement a PST.

Alberta should strive to remain rat-free forever, but on the revenue front, we need to break our dependency on resource revenues that cripple our provincial government each time there is a hiccup in the market.

14 thoughts on “Alberta can’t afford to ignore the Provincial Sales Tax

  1. Diane Gall

    if AB does institute a PST, it must avoid taxing those essentials of life that the poor rely upon to meet basic needs. It would be simpler to use a progressive income tax. A sales tax has the potential slow Econ if activity far more than does increasing the number of tax brackets.

    Reply
  2. Colin

    Bring in the Sales Tax. Time for the GOA to stop the roller coaster ride. If we were smart we’d of saved like Norway did but we didn’t and now we have to make hard choices. I’d pay an extra 5% in tax if it meant Prentice won’t cut education and health care. Quality of life matters. I can afford a PST.

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  3. Dave Cournoyer Post author

    @Diane Gall – Thanks for the comment. It is my understanding that there are ways the government can make exemptions for certain items under PST, like the federal government does with GST. Also, there is the ability to deliver rebates to lower income Albertans, like the federal government does through GST rebates.

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  4. Stephan

    Skip the whole PST entirely. Go straight to HST. Virtually no overhead impact for businesses since they already have to do GST and get input tax credits.

    The Feds handle all the administration including the income tested HST credit that mitigates the regressive nature of a sales tax.

    Reply
  5. idiot alberta

    Blogger Joe Albertan:

    In the imortal words of William “Bible Bill” Aberhart:

    “If you have not suffered enough, it is your God-given right to suffer more.”

    Lets translate this for stupid Albertans, which are most: If you dont change the way you vote, expect dysfunctional governance, expect more debt, expect feast and famine cycles, so don’t complain, about the very thing you feel is causing you pain, it is the reckless and thoufhless way you vote. Chane your vote this time or expect the same result and live with your decision.

    Reply
  6. DT

    Rather than a sales tax, I much prefer a luxury tax (e.g.: goods/services over $1000). A sales tax really hurt low income individuals.

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  7. Dave

    I do have very mixed feelings about having a sales tax in Alberta. On the one hand, it is true our government can’t continue to spend 8 to 10 billion more than it collects in taxes. When oil prices are high the problem is less apparent, but when they drop like they have recently is becomes painfully obvious.

    Personally, I feel we should first look at raising income tax rates on higher income Albertans. Due to the 10% flat tax, their rates much lower than residents with similar levels of income in other provinces. A sales tax would hurt lower income Albertans who can least afford it, so I think it should be the last option considered not the first one.

    However, if the pc’s do put in a sales tax I think Albertan’s will expect a much higher level of accountability from them in the future. We will expect that our government will be very well managed and that they end their stupid wasteful ways that have garnered a lot of headlines in the past. If they put in a sales tax and they do not manage things better, they will be replaced as the government.

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  8. David Foster

    Good article. I agree that a modest sales tax of 5% or so would be a good thing. Every other province uses a sales tax as the basis of their revenue; Alberta doesn’t and suffers from makeshift schools and falling apart hospitals. And since we pay more federal tax than provincial tax, more of Albertans’ money is going to subsidize services in other provinces! With a 5% PST Alberta would still have the lowest sales tax and income tax in Canada.

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  9. Jerrymacgp

    “…opposition New Democrats and Liberals could have a difficult time protesting a move that could majorly diversify the government’s revenue stream….” I don’t know about the Liberals, but with regard to the NDP, I think you’re dead wrong about this. The NDP’s position has always been, that as long as Alberta’s non-renewable resource royalties are artificially low, and as long as we have a non-progressive income tax system, there is no need for a sales tax.

    What this could mean, however, is that Alberta voters will be presented with starkly differing policy options for the future, without the noise generated by two largely aligned right-wing parties to distract them. Maybe they’ll pay attention and actually vote next time around. (And maybe pigs will sprout wings and take flight…).

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  10. R. D. Campbell

    Bring back a progressive tax! Heck, I’d even deal with a sales tax if they put one in. I lived in Ontario and BC before I moved to Alberta in 1998. I can live in a PST-Alberta if it means Prentice and his Calgary crew don’t have to slash and burn education and health care like Klein did in the 1990s.

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  11. Rural gal

    I want to see some hard looks at our expenditures. prentice was correct- our public service continues to be the highest wage and benefits in Canada, our health care system spends a whopping amt per capita – highest in Canada- average outcomes- surely that has red flags all over it,
    I fear that we will get a sales tax, progressive tax and perhaps a fuel tax, perhaps health care premiums- and my question is if we could not get health care problems fixed, if we could not get schools built, infrastructure done, etc at $100, bringing in revenue to equal the hole – what makes us think any of that would happen when we bring the revenue side up to what it used to be. And do not bring in a sales tax and then exempt folks or give them rebates or whatever- guess what more bureacrats.
    Take a good hard look at expenditures please. Correct some of the glaring over expenditures, nice to have stuff, and get down to the core. I am quite tired of having my pockets picked.
    Some have said that our wages and salaries in the private sector also high- true but in a down turn there are layoffs (no pension, no bumping based on seniority, no severance), there are wage reductions( to match revenue and some like having a job at a lower rate than no job at all). so this agreement in my mind does not hold water as an argument from the public sector.

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  12. Sandra

    The Conservative government needs to be accountable for their overspending and mismanagement of money. It’s not that there is not enough money, but the ongoing mishandling of such for personal political gain and agendas. Wildrose traitors should be sitting with their heads hanging down at the moment. The lack of integrity in politics sickens me. We could have a few less political photo ops and spend more time doing the hard work that needs to be done and even then, politicians would still be overpaid. Be responsible and quit always placing blame on the taxpayers. This whole plan seems contrived – Wildrose crossing, oil drop, spring election, sales tax. The ‘system’ has become so defined and elite controlled, hope for the little guy? Not likely as long as the Conservatives remain in power. Wake up voters!

    Reply

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