Tag Archives: Alberta Provincial Sales Tax

Finance Minister Joe Ceci presents the Alberta NDP's first budget.

Sky does not fall as Alberta NDP presents its first budget

When Finance Minister Joe Ceci stood in the Legislature on Oct. 27 to deliver the Alberta NDP’s first budget, it marked the first time since 1972 that the budget was not tabled by a Progressive Conservative finance minister.

Rachel Notley Alberta NDP leader

Rachel Notley

The first budget of Premier Rachel Notley‘s NDP government includes a 15 percent increase in capital spending over the next five years, with a goal to create jobs and tackle the province’s aging and neglected hospitals, schools, roads and other public infrastructure.

The NDP budget includes modest increases and projected stable funding for health care, education, advanced education and human services – core services that Albertans depend on. This was a key component of the election platform that helped propel the NDP into government on May 5. The job creation and economic stimulus elements of the budget followed last week’s creation of an Economic Development and Trade portfolio, led by Edmonton MLA Deron Bilous.

Deron Bilous Edmonton Alberta MLA Minister

Deron Bilous Edmonton Alberta MLA Minister

A projected $6.1 billion deficit in the NDP budget is larger than the $5 billion deficit presented in the Tory spring budget, which was tabled but never passed. But the Alberta government’s eighth consecutive deficit budget is “…hardly sky is falling territory,” wrote University of Calgary economist Trevor Tombe in Maclean’s Magazine this week.

While not trivial, obviously, it is completely manageable. Alberta is fully able to handle it and no one need panic. It represents 1.8 per cent of the province’s GDP, which is fairly small, as far as some deficits go,” Dr. Tombe wrote.

The NDP government will borrow to pay for parts of its operations budget starting next year, which will hopefully be a short-term move. Decades of bad financial management and poor long-term planning by the previous conservative government has exacerbated the provincial government’s current fiscal situation. The PCs simply became too comfortable and dependent on unreliable revenue from natural resource royalties to fund the province’s operations budget.

Jim Prentice Alberta Premier

Jim Prentice

Mr. Ceci also announced that the government would legislate a debt ceiling of 15 percent debt-to-GDP in order to hold off a risk of credit downgrades and higher debt service costs.

Former premier Jim Prentice was correct last year when he warned about getting “off the royalty roller coaster.” The Alberta government faces serious revenue problems and moving Alberta away from its over dependence on resource revenue will be a significant test of Ms. Notley’s first term in government.

Any plan to deal with the revenue problem will likely come after the government receives a much anticipated report from the royalty review panel chaired by ATB President and CEO Dave Mowat. The panel is expected to finalize its recommendations by the end of the year. But it will not be enough to simply wait for the international price of oil to rise again. Albertans need to have a serious conversation about revenue and taxation, including the potential introduction of a provincial sales tax.

Derek Fildebrandt Alberta Taxpayers

Derek Fildebrandt

To no ones surprise, Wildrose Party leader Brian Jean and finance critic Derek Fildebrandt responded to the NDP budget with outrage and a message filled with apocalyptic rhetoric.

Mr. Jean’s post-budget press conference was somewhat overshadowed by Mr. Fildebrandt’s bizarre decision to refuse to answer a question from Globe & Mail reporter Carrie Tait (see the ~8:50 mark in this video). Mr. Fildebrandt is sour from a recent interview Ms. Tait published in which she quotes him as claiming the NDP duped Alberta voters by actually implementing promises made during the election (and he later referred to Ms. Tait as a b-list reporter and accused her of auditioning for a job in the Premier’s Office – a comment he later retracted).

Brian Jean Wildrose

Brian Jean

A joint opinion-editorial written by Wildrose MLAs Rick Strankman (Drumheller-Stettler), Grant Hunter (Cardston-Taber-Warner), and Don MacIntyre (Innisfail-Sylvan Lake) and Dave Schneider (Little Bow) and circulated to rural weekly newspapers in September 2015 provides some sense of how that party would approach provincial budgeting if elected to government:

“When governments borrow and spend, there’s no marketable asset. There’s only debt. It’s like using a credit card to buy pizza. Even when governments borrow to spend on bridges and highways rather than programs, the debt is still not connected to a marketable asset. It’s a liability. Mortgages can be liquidated. Houses can be sold. Who buys used government bridges and worn-out highways?”

This is a crude ideological approach to public governance. Using capital financing to pay for the construction and maintenance of public infrastructure like hospitals, schools, bridges and roads is nothing like using a credit card to buy a pizza.

The Alberta NDP’s first provincial budget is sensible and reflects the thoughtful approach that has defined the first six months of Ms. Notley’s tenure as Alberta’s Premier. Rather than follow a disastrous road taken by some of her predecessors, and slash funding to government services while the price of oil is low, the NDP government is taking an opportunity to invest in much needed public infrastructure when the economy is slow and the price is right. It’s not a brand new approach in Alberta politics, but it is refreshing to see a government focus on building rather than tearing down.

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.

Once upon a time Alberta had a Provincial Sales Tax

William Aberhart Alberta Provincial Sales Tax

Radio evangelist and Social Credit leader William Aberhart was Premier of Alberta from 1935 to 1943.

Alberta’s Provincial Sales Tax free status is almost mythological in this province. But for a short period of time in Alberta’s history, our province did collect funds through a sales tax.

Solon Earl Low Alberta Provincial Sales Tax

Solon Low

Alberta’s PST existed for two years until September 1, 1937, when the Social Credit government revoked the sales tax as part of a controversial Great Depression-era Banking bill. The bill would allow the Social Credit Board to revoke the license of any banker, who, for instance foreclosed a mortgage or otherwise disturbed the “property or civil rights” of any citizen of Alberta.

The sales tax, which had a fairly wide range of exemptions such as food, laundry and toilet soap, lumber, bricks and cement, was implemented shortly after William Aberhart‘s Social Credit Party won the 1935 election. The sales tax netted the government an average of $80,000 monthly.

Alberta treasurer Solon Low declared the tax would be cancelled in 1937 as part of the government’s bankers bill. With illusions to the strange Social Credit era economic theory, here were Mr. Low’s comments to the media in response to the end of the sales tax and economic literacy in Alberta in 1937:

“The remission of the sales tax only removed something which, under pressure from finance, this government itself imposed. Nevertheless those instructed in the technique of Douglas social dynamics will immediately recognize signs of its inauguration. In its simpler aspect, of course, tax remission represents the first step necessary to the issue of a dividend – is, in fact the issue of a dividend: for a tax is a dividend in reverse. That is why it would be foolish to begin issuing money as dividends only to pull it in by a graduated an universally applied tax such as a sales tax.” 

“As Premier Aberhart has truly said Albertans are the best instructed community in the whole world with regard to economics and if any one desires more detailed explanation of these remarks there are plenty of Albertans everywhere fully qualified to give it and to prove beyond all reasonable doubt that whether the banks furnish the money willingly or otherwise, it will cost them nothing.”

(Quotes from The Ottawa Citizen, August 4, 1937)