An Alberta sales tax: The unpopular idea that just won't die
Advocates say a PST or HST could get us off the royalty roller-coaster, but for now we're continuing to ride
Alberta became the first province in Canada to adopt a sales tax in 1936 and the first province to repeal a sales tax in 1937.
It was called the "Ultimate Purchasers Tax" and Albertans hated it. We've been without a sales tax ever since, while every other province has adopted one of their own.
Our unique status in Confederation won't change when Finance Minister Joe Ceci releases his 2018 budget today.
We'll have to wait to see all the details, but he has already revealed two things about the financial plan: there will be a deficit, and there will be no sales tax. And, for all of the NDP's talk about getting Alberta off the "royalty roller-coaster," Ceci admits he's unlikely to ever balance the budget without money from oil and gas.
"I don't see that day," he said.
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To be fair, this is nothing new. Ceci is 60 years old and, in his lifetime, no Alberta government — of any stripe — has ever balanced the budget without relying on oil and gas money. Take out the resource revenue, and every single budget of the past six decades would have been in a deficit position.
Ceci's five-year plan to balance the books relies on sustained increases in resource revenues, and falls apart if those fail to materialize. In other words, we're still stuck on that roller-coaster.
But there is a way to stop this ride. There's a brake lever right in front of us. Some have suggested we should pull it, but doing so would be bound to upset a lot of Albertans.
The unpopular idea that won't die
Yes, we're talking about a sales tax.
The idea has been discussed for decades in Alberta, but nothing has actually happened — apart, of course, from that one year back in 1936.
The sales tax introduced by Premier William Aberhart's Social Credit government was a mere two per cent, but it proved wildly unpopular and was quickly repealed.
Fast forward to 2018, and it's still seen as a political non-starter.
And, yet, people keep talking about it. And not just the fringe. Advocates for an Alberta sales tax come from across the political spectrum. Some labour groups are calling for it. Some business leaders are open to it. And economists widely support it, as opposed to other forms of taxation.
Where advocates disagree is over what the money raised from a sales tax should be used for. The options are varied — and tantalizing — to supporters of the idea.
Some say we could slay the deficit in one fell swoop. Some suggest building more schools and hospitals and sticking out-of-province visitors with the bill. Others favour coupling a sales tax with cuts to other forms of taxation. They say that could attract more business investment or even make it so most Albertans pay zero — yes, zero — in provincial income tax.
So, why don't we do it?
The political reality
Because years of polling shows Albertans overwhelmingly hate the idea.
Opponents outnumber supporters by a margin of three or four to one. It's not even close.
There's a running joke that, while PST stands for "provincial sales tax" in B.C. and Saskatchewan, in Alberta it means "political-suicide tax."
Voters in this province "have a very healthy level of skepticism" when it comes to handing new taxation powers to politicians, says Colin Craig, Alberta director with the Canadian Taxpayers Federation.
"There's been a lot of examples over the years where taxpayers have been burned," he said.
Craig highlighted the federal gas tax, which was meant to deal with deficits but stuck around long after Ottawa returned to surpluses. Even income taxes, he said, were meant to be a temporary measure when they were introduced in 1917, in order to help win the First World War. The war ended the next year but the taxes have continued for a century since.
And so modern politicians tread lightly in Alberta.
The last to even hint at a sales tax was the late Jim Prentice. In January 2015, the recently elected premier was facing an oil-price crash and a looming budget deficit forecast in the $7-billion range. In need of new revenue options, he suggested in a speech to an Edmonton business crowd that he'd at least consider the idea.
After floating that trial balloon, Prentice promptly popped it.
During a radio interview on CBC's Alberta at Noon, the then premier said he had heard loud and clear that Albertans didn't want a sales tax and his government, if re-elected, wouldn't introduce one.
But it was the NDP that formed government and — still facing that same oil-price crash and massive deficit — decided they would take no chances on the thorny sales tax question.
Premier Rachel Notley said "unequivocally" she would not introduce one at any point during the mandate Albertans had just handed her.
But then, she opened the door back open, just a crack, in case a future government might build up the gumption to barge through it.
"In the long term, is this a conversation we need to have?" Notley said in a 2016 interview. "I think it is. But not right now."
Some Albertans, however, say now is a great time to talk about a sales tax, including plenty on the left side of the political spectrum.
The progressive case for a sales tax
Last week, Public Interest Alberta launched a new campaign called "Revenue Reno" that aims to get the conversation going again.
The left-leaning lobby group highlights what it describes as structural problems that have developed over time in the province's finances. Oil and gas money has sustained us through the good times, they say, and deficit spending through the bad. That can't continue indefinitely.
"We don't even collect enough money to pay for basic things like schools and hospitals anymore," a narrator says in one of the campaign's video ads.
"Instead we've relied on unstable sources of money, like resource royalties, to pay for essential services. That's like hoping for a lottery win to pay your heating bill."
The campaign points out that Alberta will continue to run deficits if it doesn't curb spending or raise revenue, and suggests a sales tax — "a fact of life in every other province" — as a key part of the solution.
The ad says a one-per-cent sales tax could mean $1.6 billion for provincial coffers. A two-per-cent tax? That's $3.2 billion. And so on.
This, however, is at the high end of these types of estimates.
Another left-leaning group, the Progressive Economics Forum, estimates revenues closer to $1 billion for each percentage point in sales tax, as part of an alternative budget it released this week.
"We must accept that introducing a sales tax is the only option that would generate the substantial revenue required to shift the province away from its reliance on non-renewable resource revenues," that document states.
"The question should not be whether the province should implement a sales tax, but rather how should the province implement such a tax."
Both groups argue a sales tax is needed in order to maintain — or even expand — provincial spending on things like health care, education and social services. And a rebate program, they say, would minimize the impact on lower-income Albertans.
Others might disagree with using the funds in that way. But that doesn't mean they oppose a sales tax.
Given all those polls that show Albertans massively opposed to a sales tax, Finance Minister Joe Ceci might reasonably have expected a thunderous ovation when he stood before the Calgary Chamber of Commerce back in 2016 and declared his government would not introduce one.
Instead, he received some tepid applause, followed by pointed questions as to why he was ruling out the idea.
At that time, Alberta's deficit projection had just hit $10.4 billion and the business crowd wanted to know how Ceci planned to close that yawning gap.
While business types aren't typically in favour of tax increases, Adam Legge, chief executive of the Calgary Chamber at the time, said perspectives on a sales tax, specifically, were shifting.
"I think people are saying you're closing a door that doesn't need to be closed," Legge said following Ceci's speech.
"They understand we have to find some way to raise revenue, and that's the one that is staring Alberta in the face."
Of course, being curious about a sales tax is one thing. Supporting the idea is quite another.
Some small business owners, in particular, remain skeptical, according to Amber Ruddy with the Canadian Federation of Independent Business.
"Small businesses owners simply don't trust that politicians are going to use it to balance the budget," she said. "Every time we see a new revenue stream, we see politicians finding new ways to spend that money."
A recent survey of more than 1,000 CFIB members found 89 per cent opposed to a sales tax in Alberta. Most believed there are better ways to deal with the deficit, Ruddy said, and would rather see the government start by curbing its spending.
Of course, there's nothing to say a government couldn't do both.
And that's something favoured by economist Jack Mintz — the granddaddy of sales tax advocates in Alberta.
A revenue-neutral sales tax
For the past decade, Mintz — an economist who specializes in tax policy at the University of Calgary's School of Public Policy — has been waging a campaign in favour of a specific type of sales tax in Alberta, coupled with tax reductions in other areas.
He's published papers on this. He's held press conferences. He's appeared on TV.
Search Google for "Jack Mintz" and "sales tax" and you'll find more than 4,000 hits.
Rather than a PST, Mintz prefers a "harmonized sales tax" or HST. It's a small distinction with a big difference.
Instead of the provincial government running the program, an HST would involve tacking extra percentage points onto the GST that's already collected by the federal government, and having the additional money diverted to Alberta. It's easier for retailers that way and reduces administrative costs for the province, as well.
Mintz says an HST would also reduce the tax burden on businesses, because it would allow them to claim the same "input tax credits" that they do for the GST. These are deductions for certain business expenses that are meant to be tax exempt, under the federal law.
Mintz believes Alberta would do well to add its own eight per cent sales tax on top of the five-per-cent GST.
He estimates that would boost provincial revenues by about $8 billion per year.
Of course, it would also mean your $100 purchases would ring in at $113 instead of $105, once taxes are applied.
But while you'd pay more on what you buy, under his proposal, you'd also pay less on what you earn.
Shifting to taxes that 'hurt the least'
Mintz says Alberta could use the revenue from an eight-per-cent HST to reduce taxes in all sorts of other areas.
"If you took that and cut personal and corporate income taxes, I can tell you that would create a huge advantage for Alberta, as an economy," he said.
Under the specifics of his plan, most Albertans would pay nothing in provincial income tax, which would only apply to two-income households earning above $114,500 or individuals earning half that. And even then, those who earn above that amount would see their tax bill cut by about 10 per cent.
There would still be enough money left over to reduce corporate taxes by about 15 per cent, something Mintz says would help boost Alberta's flagging business investment levels.
Now, that may all sound like a wash, as it's simply shifting taxes around from one place to another. But in economists' eyes, some taxes are worse than others.
"All taxes hurt — every one of them," said Ron Kneebone, also with the U of C. "The trick is to choose the tax which hurts the least. And economists are united in understanding it's some sort of an HST."
But there's a kicker, here, too.
Even if the tax shift is truly revenue-neutral and the government doesn't collect an extra dime from Albertans, as a whole, Mintz says an HST would still bring a hefty boost to the provincial treasury.
That's because there are plenty of people who spend money in this province but don't live here. Tourists would be forced to pony up for everything they buy while visiting. Same goes for the itinerant workers who have jobs in Alberta but call another province home, and pay their income taxes there.
Mintz figures that would add up to about $800 million per year.
"So, actually, Alberta would pick up some revenue that it would not otherwise have," he said.
It may all sound great, on paper. Putting it into practice is where things get tricky.
Policy vs. politics
The finance minister was unequivocal when we asked him whether he'd consider an HST along the lines that Mintz is proposing.
"No to a sales tax," Ceci said.
Ceci didn't take issue with the economists' arguments in favour of a sales tax. Rather, he said he is taking his cues from the overwhelming majority of Albertans who don't want one.
"You do need to get your mandate from the people," he said.
Ruddy, with the Canadian Federation of Independent Business, also understands — and even agrees — with the case on paper for a revenue-neutral HST.
But as an actual policy for Alberta? She remains unconvinced.
Again, it comes down to trust in government, or a lack thereof.
"Frankly, the theory — in a pure, academic sense — makes sense," she said of Mintz's proposal.
"Consumption taxes tend to be more efficient than other types of taxes. But we are not seeing any appetite from this government to start to reduce corporate taxes. They've increased corporate taxes since they've been around."
Polling in recent years has put opposition to a sales tax in the neighbourhood of 73 per cent. Still, Mintz recalls polls taken a decade ago, when he began his push for an HST, that found opposition levels closer to 85 per cent.
He sees progress. But, it's slow.
"I've always found with public policy, it's kind of like a water spout," Mintz said.
"You first get a leak that drip, drip drips. And then, all of a sudden, you get a swoosh. And everyone thinks: You know what? It's about time we go in this direction."
Maybe. But not on budget day.
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With files from Brooks DeCillia and The Canadian Press