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Alberta Politics

Tax Increases no longer Political Kryptonite in Canadian Elections

It’s been a rough year for Conservatives in Canada as two major elections in six months have resulted in major blows for Conservative parties in Alberta and Ottawa.

Justin Trudeau
Justin Trudeau

In May 2015, former federal cabinet minister and bank vice-president Jim Prentice, a political moderate and patrician of the province’s Conservative establishment, led the 44-year long governing Progressive Conservatives to a stunning defeat by Rachel Notley‘s New Democratic Party.

This week, Prime Minister Stephen Harper‘s Conservatives were swept from office by Justin Trudeau‘s Liberal Party.

These two major election defeats shattered many common beliefs about politics in Alberta and Canada. In both cases, Conservative parties were defeated by parties promising moderate progressive platforms that included tax increases and significant increases to public infrastructure investment and explicit commitments to run deficit budgets, for at least the short-term period in the case of the NDP. In Alberta, both the PC Party and NDP promised various tax increases.

On the final Sunday of the federal election campaign, Mr. Trudeau spoke to an energetic crowd of more than 2,000 supporters in the Edmonton-Mill Woods riding, home of now elected Liberal MP Amarjeet Sohi. During his speech, he explained to the crowd that if the Liberals were elected on Oct. 19, that they would raise taxes by asking Canada’s wealthiest income earners “to pay just a little bit more.”

Rachel Notley Alberta NDP leader
Rachel Notley

If these words sounded familiar to anyone in the crowd, it’s because they might have heard Ms. Notley deliver nearly the exact same message five months earlier when speaking to similarly energized crowds during the provincial election. And they in both cases, the message resonated with the crowd, and on election day with voters.

This new reality will certainly come to a shock to those gathering at Preston Manning‘s institute on Oct. 22 to watch the Canadian Taxpayers Federation present former Alberta Treasurer Stockwell Day with a “TaxFighter Award” for his role in implementing Canada’s first 10 percent flat-rate personal income tax in the late 1990s and early 2000s. This is the same flat-tax that Ms. Notley’s NDP replaced with a progressive income tax system only a few short months ago.

These tax increases and other changes brought in by the NDP have not been without their critics, some more vocal and violent than others. But perhaps the biggest irony of these criticisms is that even with the tax increases brought in by Ms. Notley’s NDP, corporate and small business tax rates are still lower than they were when Mr. Day served in Premier Ralph Klein‘s cabinet.

While taxes might not have been the only issue that drove voters to the polls, it didn’t drive them away. These two elections have shattered the myth cultivated by conservative politicians, newspaper columnists, think tanks and lobby groups for decades that promising to increase taxes is political kryptonite.

As Rachel Notley proved on May 5 and Justin Trudeau showed on Oct. 19, voters in 2015 are willing to reward political leaders who present smart, sensible and responsible plans for increased taxation and government revenue.

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Alberta Politics

Prentice re-election budget tough on sinners, easy on corporations

Premier Jim Prentice Alberta PC leadership race
Jim Prentice looked like a political juggernaut when he won the October 2014 Calgary-Foothills by-election. Today, voters in Foothills will choose his replacement.

OTTAWA, ONTARIO 

“If Alberta can deliver a budget, why can this minister of finance not,” Liberal MP Scott Brison asked of Finance Minister Joe Oliver, who was absent from the House of Commons today. Opposition Members of Parliament have been chastizing the Conservatives for refusing to set a date for when this year’s federal budget will be released even after Alberta and Saskatchewan have released their provincial budgets.

Robin Campbell Alberta Finance Yellowhead
Robin Campbell

In the Conservative-heartland of Alberta, despite months of doom and gloom warnings triggered by low oil prices, Progressive Conservative Premier Jim Prentice and Finance Minister Robin Campbell did not present the budget filled with the massive across the board cuts many Albertans were expecting.

The PCs are once again running a deficit budget, as Alberta has in every budget since 2008, even during times when oil prices were high. Despite the Ralph Klein-era mythology of Alberta as a deficit adverse province, it has become the norm in provincial financing.

Funding cuts to health care and education will not have a positive impact on Albertans. Politicians claim the cuts will not impact front-line services but it is unclear how cuts like this can not impact the front-line services that Albertans depend on. Although the price of oil has declined, our provincial population is still growing and demand for health and education services has not decreased.

“We’re going to see more students arriving at the school doorsteps with no new money provided to educate them,” Edmonton Public School Board chairperson Michael Janz told Metro Edmonton. “I don’t think this is a good news budget for Edmonton public schools.”

The budget introduces a new health care levy, which appears to be similar to a health care premium that existes until the PCs cancelled the tax in 2009. Despite its name, the previously incarnation of health care premiums were directed into the province’s general revenue pool, not directly towards the health care budget.

The single-rate 10 percent flat-tax, a strange and short-sighted policy championed by former Finance Ministers Steve West and Stockwell Day in the early 2000s, appears to have been died. Minor tax rate increases are being introduced for Albertans earning more than $100,000 and $250,000 annually. According to the Parkland Institute, the flat-tax reduced government revenue by $5 billion annually from pre-2001 rates.

Sin taxes, gas taxes and user fees increased in the budget mean life will become a little more expensive for drinkers, smokers and drivers in Alberta. A previously existing alcohol tax was implemented then almost immediately reversed in the 2009 budget, which reduced government revenues by $180 million per year.

Personal taxes and fees are increasing but Alberta’s low corporate taxes will not be increased. Despite having the lowest corporate taxes in the country by far, for Conservatives there appears to never be a good time to raise taxes for corporations.

When the economy is slower, Conservatice politicians argue tax increases would cause corporations to layoff workers. When the economy is booming, politicians argue tax increases would cause corporations to stop investing.

The truth is that Alberta could raise tax rates by $11 billion annually and would still have the lowest tax rate in Canada.

This budget was a missed opportunity to introduce a provincial sales tax, which exists in every other province in Canada and nearly every expert has endorsed. At a 2013 provincial fiscal summit in Edmonton, economist Bob Ascah suggested that a 1 per cent sales tax could raise $750 million in annual revenue for the provincial government.

In Alberta, we hear a lot from our political leaders about tough economic times, even when times are prosperous. In advance of an expected spring election, our politicians are managing voters’ expectations and positioning themselves to take credit as ‘prudent fiscal managers’ when the world-wide price of oil inevitably increases.

Without the massive cuts that were expected, it could be tough for the opposition parties to campaign against this budget in the upcoming election. After four decades in power, it is difficult to envision the PC Party actually fixing Alberta’s long-standing revenue problems, but this budget will not stand in the way of Mr. Prentice easily extending his party’s next four years as government.

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Alberta Politics

Sometimes living in Alberta is like living in Bill Murray’s Groundhog Day

Premier Jim Prentice and Finance Minister Robin Campbell steer Alberta through 'tough economic times.' [Note: Individuals portrayed in the image are not actually Jim Prentice and Robin Campbell.]
Premier Jim Prentice and Finance Minister Robin Campbell steer Alberta through 'tough economic times.' [Note: Individuals portrayed in the image are not actually Jim Prentice and Robin Campbell.]

Sometimes living in Alberta is like living in the classic film Groundhog Day, in which actor Bill Murray finds himself in a time loop, repeating the same day again and again.

In Alberta, relying on the cyclical nature of oil prices while not planning for the future, we appear doomed to repeat the same mistakes over and over again. Despite our enormous natural wealth, the declining price of oil and a lack of long-term planning has left our government with a significant short-term gap in revenue.

While other oil-rich jurisdictions, like Norway, set aside large financial reserves in order to weather this sort of slowdown, Alberta’s Progressive Conservative leaders have historically not shared that vision.

Looking for other sources of revenue, Finance Minister Robin Campbell floated the idea this week of reintroducing Health Care Premiums. Albertans paid monthly health care premiums until the PC Government cancelled them in 2009, forfeiting an estimated $1 billion in annual revenue at the time.

Despite the name, the previous version of the health care premiums were not dedicated health care funding but were instead funnelled into the provincial government’s general revenue.

The health care premiums trial balloon is another distraction from the real revenue problems that Alberta’s politicians are reluctant to address, such as the reintroduction of a progressive taxation system, like the one Alberta had before the short-sighted flat tax was introduced in 2000.

While Mr. Campbell has travelled the province to meet with business groups and rooms filled with friendly supporters, there has been no real attempt by the government to start a meaningful conversation or consultation with Albertans about how their public services are funded. And while the PCs have signalled an intent to increase revenue by some manner, which is a positive step, Premier Jim Prentice has already ruled out some sensible changes.

Mr. Prentice has nixed any plans to make increases to corporate taxes and natural resource royalties, and likely the introduction of a provincial sales tax. The decision to avoid more corporate taxes and royalty increases is not surprising, as it serves to protect the large corporations and wealthy individuals who continue to make large donations to the PC Party.

What Albertans collect as a share of natural resource royalties from oil (image from the AUPE document "Factcheck 2015 Budget")
What Albertans collect as a share of natural resource royalties from the oil sands (image from the AUPE document “Factcheck 2015 Budget”)

According to comments made my Mr. Prentice, it would seem that the Alberta Government’s projected $7 billion in royalties from the oil sands have completely evaporated. Documents from Alberta’s Department of Energy show that when the price of oil was sitting at $120.00 a barrel, Albertans were only collecting $10.80 per barrel in royalties (9%) on gross revenue from the oil sands. Now, with oil at less than $55.00 a barrel, we are estimated to be collecting around $0.55 per barrel (1%) in royalties. Even when the price of oil was at its highest, Albertans might have only been collecting 40% from the net revenue of the oil sands.

As the owners of the natural resources, Albertans are within their right to ask for and expect to receive their fair share from the resources in our province.

Ed Stelmach was the last Premier who attempted to change the royalty structure and he faced a severe backlash from the oil and gas industry. With close ties to corporate Calgary, it is unlikely that Mr. Prentice will want to touch the issue of royalties.

Corporate and personal taxes in Alberta are estimated to be $11 billion lower than any other province in Canada. It is believed that a 5% increase for personal incomes above $150k could bring in an estimated $1.13 billion in revenue for the government. It is also estimated that each 1% increase in corporate taxes would bring $500 million in revenue.

Unfortunately, as is usually the case in politics, the loudest voices get the most attention. And Mr. Prentice’s hint of a 9% funding cut for public services has been followed by a barrage of opinion-editorials from market fundamentalists and the tax outrage industry calling on the province to slash health care and education funding.

Other opinion-makers, like the City of Edmonton’s Chief Economist, John Rose, warn that provincial budget cuts to combat the falling price of oil will have a negative impact on the economy. Mr. Rose also suggested the province have a serious discussion about a provincial sales tax.

Alberta is the one jurisdiction in Canada that has the capacity to weather this kind of economic downturn. Rather than relying on short-sighted budget cuts that are sure to only cost more money in the long-term, Alberta’s political leaders have an opportunity to redefine how our province prepares for its future.

In Groundhog Day, Bill Murray’s character finally ends the time-loop after doing a great job on his reporting assignment and finding true love. Maybe Alberta’s version of Groundhog Day will end with meaningful revenue reform. It is not a motion picture ending, but it would be good of the future of our province.

Alberta Election Google Hangout!

We are launching a sequel to the popular EdmontonPolitics.com Google Hangout. Tune in tonight at 7:00 p.m. to join Mack Male, Ryan Hastman and I for the first Alberta Election Google Hangout.

 

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