A Little Heresy - Alberta Style

So, according to Premier Prentice, the downturn in oil prices is going to create an $11 Billion hole in provincial revenues, and is now talking about putting the brakes on all kinds of infrastructure spending, including a new cancer hospital in Calgary.

Okay, that's a significant chunk of change.  Let's talk about this for a moment.

As the leader of the governing party, Mr. Prentice has a responsibility to all Albertans to ensure that the machinery of government continues to operate smoothly.  Over the last 25 years, we have seen the government make further tax cuts all over the place, in particular to the benefit of corporations, but also introducing a rather ridiculous 'flat tax' income tax scheme.

Every time, the government has tied itself even more so to the revenues from resource royalties to fund programs.

Mr. Prentice, you want to balance the books?  Here's how you do it.  Take a long look at all of the possible revenue sources the government has access to.  Not just tar sands royalties (which are, a pittance because your predecessors cut them to almost nothing).

First, Mr. Prentice, you need to take a long, hard look at the taxation system.  Are the corporations who do business in Alberta paying their fair share?  No?  Then we need to design a taxation system that ensures that they do, especially since so many of the corporations are basically funnelling monies out of Alberta and Canada as quickly as they can.

Second, we need to look at what the individual income tax system does.  Is a 10% flat tax ensuring that we are taxing incomes fairly across the board?  Or do we need to return to the graduated system that was developed in the 1950s?  (Hint:  probably)

Third, and here's where I commit heresy, you need to take a longer range view and determine the means to stabilize provincial revenues so that we are insulated from the vagaries of the resource markets.  This may mean, *gasp*, implementing a sales tax (like damn near every other jurisdiction in the world) that sits in line with the GST, but is not harmonized with it - we don't want to hand control over those revenues over to Ottawa either.

Oh yes, and you need to shed this fetish that conservatives have developed lately with "Public Private Partnerships" and start thinking about long term debt financing instruments like bond funds again.  PPPs just hang the taxpayer with long term operating costs and leases.  One thing that Redford had done (although clumsily) was to structure our finances with a distinction between long term infrastructure costs and operating costs.  That's a distinction that matters, and we need to shed this silly "debt is bad" mantra - yesterday.  Long term debt that is used for purchasing infrastructure is not a bad thing.  It never was.

Alberta needs to funnel every dime it gets in resource revenues into the Heritage Savings Trust Fund. Now.  In a couple of decades we can use the investment income off that fund to sustain the entirety of the government (hint:  take a long look at Norway).  In the meantime, let's use all of the instruments of revenue collection available to the government so that we can actually have a reasonable standard of living for the PEOPLE of this province.  

Alberta's Sales Tax Phobia

Ever since I was a child growing up, Alberta has made a big deal about how we don't have a sales tax.  Back in the day, when resource revenues were perhaps more predictable because the markets didn't move as fast as they do now, perhaps that was a good thing.

I had started to advocate that we should consider a sales tax in Alberta back in the early 1990s when we were climbing out of the second brutal recession in a decade.  Even then, it was apparent that the government's revenues were far too unstable.

So, when Jack Mintz proposed an 8% PST for Alberta, I wasn't disappointed.  He even went so far as to propose structural changes to make it revenue neutral relative to current taxation levels.  So far, so good.

It comes as no surprise that the first thing out of the Premier's office is a flat out rejection of the concept:

In Alberta, the "no sales tax" mantra  has been around for so long that it has evolved into some kind of political sacred cow.  Nobody dares to suggest that we should change it for fear of being beaten up by the far right over "new taxes".

The article does point out the catastrophic failure of the HST in BC:

An HST was introduced in British Columbia, but proved hugely unpopular and was eliminated in a referendum in August 2011.

But, that overlooks a significant issue with the way in which the PST was introduced in BC.   In the 2009 election, Gordon Campbell promised not to introduce the HST, only to turn around a few short months later and do exactly that.

For the last year, while Mr. Campbell doggedly extolled the virtues of the HST as good for the economy, citizen unrest surfaced in the form of a campaign by former premier Bill Vander Zalm, who collected more than 700,000 signatures in favour of repealing the tax, prompting next year’s referendum under provincial legislation. 

Much of the anger stemmed from Mr. Campbell’s promise not to introduce the tax before being re-elected in May 2009.

Voters will forgive a great many sins in our politicians, but a lie of that magnitude is pretty much political suicide.  BC voters chose to dismantle the HST in a 2011 referendum which I still believe was more of a "venting of spleen" than an objective decision.  Rightly so, voters had every right to be angry over what happened in 2009/2010.

However, Alberta's stance is every bit as foolish as Campbell's was in BC, just for different reasons.

The mantra of "no new taxes" that started when Bush I was running for the Presidency in the late 1980s has become a blind mantra of "no taxes", especially in Alberta.

The language of politics has come to confuse debt and deficit as if they are the same thing.  They are not, nor should we see them as such.  Ironically, one of the things that Redford has done that I actually like is differentiate between capital budget expenditures for infrastructure, which we may well borrow to fund and operational expenditures which should not be financed through debt mechanisms.  A 20 year debt to fund building a new hospital is not a bad thing - that building will be in use long after the initial 20 years is elapsed.

The problem Alberta faces is that it depends far too much on a resource royalty regime that floats with market prices for bitumen, and similar for natural gas - both of which have been hovering at record low levels for the last several years.  Alberta's revenues are unstable.  We get surpluses when the price bumps up a bit for a few months, and deficits when a down cycle happens.  In short, our revenues at the provincial level are unnecessarily volatile.  Further, they are subject to manipulation by a market whose key stakeholders are those who benefit most by keeping the prices for bitumen low.  (and since the same corporate entities that are extracting the bitumen are the ones who own the refineries in Texas and Oklahoma which refine the bitumen into something more usable, it's not hard to see where there's a fairly obvious desire to manipulate the futures markets to their own ends.

Ultimately, a government has responsibilities to its people.  Any government that rules out the use of a specific tool for purely political reasons is run by fools.  Are people going to complain about a change in the tax regime?  Of course they are.  Does that mean we should not do it?  No.

I'd like to see a more detailed analysis of the revenue streams that would be impacted.  It's time for Alberta to grow up and move beyond the boom-and-bust wild west model of finances.  We are no longer a small province with a small population.  We have a lot of people, and a lot of pressures on our government to provide necessary services for those people.  We are rapidly reaching the point where the demands are going to be constant, and the government will not be able to afford to ignore the volatility of our current revenue model.

I do have concerns with the structure of an HST - I fear that it may put too much control in Ottawa's hands, just as the provincial government collecting property taxes has hamstrung school boards and cities in Alberta.  But that doesn't invalidate the discussion - and it is one which we are long overdue to have in this province.

 

This Is Pretty Much Sacrilege In Alberta

It's about time that someone started to discuss a sales tax.

I've said for years that Alberta's government needs to examine its cash flow realities and adapt to the current situation. For far too long, we've been living in a fiscal lala land where the notion of a sales tax has been taboo - in spite of the reality that just about every other jurisdiction on the continent has one.