A new report from the Business Council of Alberta says the province should institute a harmonized sales tax (HST) and reinstate the provincial carbon tax.
According to the report by the council, Alberta overspends and undertaxes, which has resulted in a $40-billion debt.
Over the years, the province has been able to get away with it due to resource royalties from oil and gas companies; however, the council says this reliance has now caused a problem.
“Provincial governments dependent on resource revenues tend to increase spending in response to high commodity prices but resist curtailing spending when prices decline,” says the report.
Mike Holden, chief economist with the Business Council of Alberta, says that on average, the province collects eight per cent less revenue than other provinces.
“We are the only province that doesn’t have a sales tax of any kind. Most have harmonized sales taxes,” he said.
A harmonized sales tax, or HST, blends a new provincial sales tax with the existing federal goods and services tax (GST).
“We’ve used resource royalties to sort of patch over the difference, and as royalties are falling … we’ve increasingly made up that gap with debt.”
Holden says that because of this, a new fiscal model is needed to fix the province’s finances, and that spending cuts alone will not be enough.
“Most Albertans wouldn’t want us to cut our way to fiscal sustainability, so we have to take a look at what we can do on the revenue side.”
He isn’t yet recommending how big the sales tax should be but says every one per cent would add about one billion to provincial offers.
While the pandemic didn’t create the issue, Holden says it definitely magnified the debt and added a sense of urgency.
“Twelve years ago, we had a $50-billion net asset position and we swung $90 billion into a $40-billion-dollar debt. And that’s all pre COVID.”
He says moderate action now would stave off more drastic action later.
“We’re not suggesting that be done immediately. This isn’t like a 2021 budget issue. It’s something that we need to talk about now and then plan out what it looks like.”
Holden says he understands it’s not a popular option but Alberta may not have another choice.
“Given the trajectory of resource revenues in the province, we can’t really rely on them in the future. And so hoping that they rebound isn’t a plan,” he said.
Why a carbon tax
Holden says that by reinstating the provincial carbon tax, the Alberta government would receive additional revenue.
Right now, Alberta has the federal carbon tax in effect, which Ottawa collects and provides rebates.
“If the province sort of repatriates that carbon tax, it provides a large cash influx into provincial government coffers, and then we can have a discussion about what we actually do with that money,” he said.
As well, he says this will show the investment community how serious Alberta is about reducing carbon emissions.
“They’re not popular ideas, for sure. But I think we do need to talk about them and talk about why we’re in the situation where we need to actually actively consider these options.”