“Rat-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.
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.
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.
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.”
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.