Time for a sales tax?” is the whack-a-mole question of Alberta politics—one that pops up in the Legislature, in press scrums, in newspaper headlines. No matter how long it’s been since the last answer, the question won’t go away.
Some Albertans say a sales tax could comprise the missing piece of our revenue pie. Over the last 10 years of Progressive Conservative rule in Alberta, oil and gas royalties and sales averaged well over a quarter of the province’s revenue—including a whopping 40 per cent in 2005/2006. Since 2014, however, resource revenues have crashed, now making up only 7 per cent of the government’s income. A sales tax could level out the extreme highs and lows that come from depending on natural resource revenues. It might even steer Alberta away from financial crisis, as oil and gas prices seem unlikely to bounce back to $100 per barrel anytime soon.
Some, however, say a sales tax is a cop-out. Introducing it, they argue, would just give the provincial government of the day more money to “play with,” when the premier and their cabinet ministers should spend more carefully. The idea of cutting back, tightening belts, spending less, certainly sounds responsible. But such arguments rarely go beyond the hypothetical. What would cuts mean for student/teacher ratios, emergency room wait times or highway maintenance? How deeply would a government that now collects about $42-billion annually and spends about $53-billion need to hack at services and infrastructure to get to balance if new revenues from a sales tax aren’t added to the mix?
Still other Albertans say a sales tax is simply long overdue. They tend not to over-complicate the matter with details—legislators and bureaucrats could nail down the rate and what the tax would cover or wouldn’t. Some have advocated for a sales tax even in years of plenty. They argue it’s past time political leaders simply recognized Alberta’s revenue picture for what it is: volatile. They add the province should pay for public services out of tax revenues, not out of resource revenues, which come from the one-time sale of assets.
Welcome to Alberta’s provincial sales tax debate. For decades some version of this debate has pitted experts, advocates, politicians, businesspeople, journalists and ordinary citizens against each other. But the stakes are particularly high today, when oil prices remain stubbornly low because of forces beyond Alberta’s control, such as a glut of non-traditional oil and international price-setting. The stakes go higher still when we consider that other non-renewables, such as natural gas, are yielding less and less revenue each year as well.
Whether to introduce a provincial sales tax in Alberta is a debate that needs to be taken seriously. The so-called “Alberta Advantage”—low taxes—was long made possible by high oil and gas revenues. Short of a time machine that would allow contemporary Albertan policymakers to go back to the past (repeatedly) to urge their counterparts to save more resource revenues or to restructure royalties, a sales tax would seem an obvious solution for addressing the province’s financial woes.
Every other province has a sales tax, ranging from a high of 10 per cent in each of the Maritime provinces to a low of 6 per cent in Saskatchewan. In Quebec, for example, where a provincial sales tax of just under 10 per cent is added to a 5 per cent federal sales tax (goods and services tax, or GST), a $10 pair of gloves becomes an $11.50 purchase. Exceptions abound, however: there isn’t a PST on prescription drugs, books or “basic groceries,” and at government-run liquor stores the sales tax on a bottle of wine is rolled into the sticker price. In BC the sales tax is 7 per cent, but with exemptions for groceries, restaurant meals, books, magazines, newspapers, prescription drugs (and non-prescription medications such as cough syrup), children’s clothing and even bicycles.
In 2013 Jack Mintz, director of the School of Public Policy at the University of Calgary, and researcher Philip Bazel proposed that Alberta introduce an 8 per cent provincial sales tax alongside lower income taxes and corporate taxes. More provincial revenue would come from a consumption tax and less from other taxes—a wash, perhaps, but the province would be less reliant on resource revenues. Mintz also called a sales tax one of the “best taxes,” arguing it’s fairer than a tax on income and stimulates investment. His and Bazel’s proposed sales tax would have yielded some $8-billion in annual revenue.
Today others are suggesting that a provincial sales tax—unaccompanied by a cut to other taxes—could help Alberta cover its deficit, avoid selling public assets and even help bulk up the Heritage Savings Trust Fund. In 2016 a group of 19 Albertans co-authored an appeal to the province to bring in a sales tax, arguing, “The accepted rule is that every 1 per cent on a sales tax equates to $1-billion in revenue. A 5 per cent sales tax—harmonized (with the federal GST) in order to lessen the costs of implementation—would thus bring in $5-billion, enough to significantly address the province’s current fiscal problems.” The signatories added “there is simply no realistic alternative if the province hopes to return to a balanced budget and pay for necessary services.”
The “Alberta Advantage”—low taxes—was made possible by high oil revenues, which have evaporated.
Melville McMillan, emeritus economics professor at the University of Alberta, was one of the appeal’s signatories (the others include 15 Alberta academics plus one-time federal privy council clerk Alex Himelfarb, former Alberta Liberal leader Kevin Taft and economist Greg Flanagan). McMillan says a sales tax could help wean Albertans from an addiction to resource revenues. “We’ve been very fortunate—but that natural resource revenue has been extremely volatile, so we’ve had booms and busts,” he says. “In the boom times, we sometimes save a little bit, and in the bust we always feel we deserve another boom. We’re there with our fingers crossed, waiting for the next boom to get us out of trouble.”
Natural resources always seemed to come to the rescue, McMillan says, even curtailing premier Ralph Klein’s sweeping cuts to government services and infrastructure in the 1990s with a sudden influx of cash. But we can’t expect this to happen anymore, he says; more people living in Alberta means more sharing in whatever wealth is generated by the energy sector. “Natural resource revenues have been declining as a contribution to our provincial government, largely because the population has been increasing and the revenues haven’t been increasing in parallel or as fast,” he says. “Resource revenues have been spread across more and more people. So they have come to be a relatively smaller contributor.”
McMillan argues an Alberta sales tax would still have to be accompanied by spending cuts in order for the province’s budget to balance. Meanwhile, if the government only cut away at the budget, he says, and didn’t add new revenues, “You’d get down to the lowest level of provincial government spending in the country. And I don’t think Albertans are quite prepared to go there. But that’s a political issue.”
Indeed, if it were simply a matter of negating the effect of reliance on resource revenue or finding a revenue source to pay down debt, perhaps Alberta would already have a sales tax. And the province does already levy a tax on some consumable goods: liquor and tobacco (though this is hidden in the price), gaming and tourism. Meanwhile Albertans have been paying GST since 1991. Alberta did have a sales tax—briefly—during the Depression. It was called the “ultimate purchasers’ tax,” rang in at 2 per cent and lasted one year.
But rather than a subject for debate in Alberta, the sales tax long ago got lodged in the realm of mythology, culture and even our identity. This is perhaps best revealed by the Edmonton Journal’s archive, where hundreds of headlines between 1989 and 2017 relay a history of Alberta’s long-term love/hate relationship both with the concept of a sales tax and uneven resource royalty revenues.
A February 1990 headline “Sales tax due sooner or later” coincided with a $1.5-billion provincial deficit. The Heritage Savings Trust Fund, designed by former premier Peter Lougheed to save some oil revenues for a day when there would be less oil, was stagnating—even losing money when its value was adjusted for inflation. Natural gas was failing to live up to expectations as a revenue generator. Don Getty was premier, the economy was bad and all the ingredients were in place for Albertans to flirt with the notion of a sales tax.
Such flirtation, as manifest in media coverage, is nearly always expressed through the words of someone who knows economics and is not necessarily advocating a PST (of course) but merely pointing out its merits. Usually a politician—who may or may not have also expressed interest in investigating a sales tax, or a source of revenue that could smooth the rough edges of the province’s reliance on natural resources—promises to never, ever, not ever, introduce one in Alberta.
In one 1990 story, by Journal columnist Mark Lisac, the leading expert is Al O’Brien, Alberta’s deputy provincial treasurer at the time, who wrote his late 1960s master’s thesis on introducing a sales tax—because it seemed unavoidable. Lisac marvels at the change in political tone two decades later, when every party in Alberta’s legislature objected to introducing one.
The following year the GST was brought in across the country by prime minister Brian Mulroney’s Progressive Conservative government. The rate was set at 7 per cent: If you bought a pair of gloves for $10, you paid $10.70 at the till. Alberta took Ottawa to court over the new tax, suggesting that a sales tax stepped hard on the province’s toes.
But a November 1991 headline speaks for itself: “No provincial sales taxes in Alberta? For how long? If slumping oil revenues are permanent, Alberta may only be delaying the inevitable.”
In 1993, during a provincial election, all three of Alberta’s major party leaders threatened that their opponents would introduce a PST—even though no party intended to introduce one. Liberal Laurence Decore told the Journal he wouldn’t introduce a sales tax, adding, “The provincial government has a responsibility to get its spending under control rather than asking Albertans to bear the burden of tax increases.” The NDP’s Ray Martin offered, “Sales taxes are unfair. They force ordinary families to pay a greater percentage of their income than the wealthy. Sales taxes also act as a brake on economic recovery.” And premier Klein told the Journal: “I’ve always said that in Alberta we have a spending problem, not a revenue problem. No government can tax itself back to prosperity. Just look at the other provinces to see that a sales tax is no solution to deficits and debts.”
Almost a decade later Klein’s government was on track to eliminate the province’s debt, and the absence of a PST was once more a badge of honour. Things were so good that Treasurer Stockwell Day began to muse about whether Albertans could be taxed very differently. Would it make sense to trade off income tax for a sales tax? Day gently floated the idea in February 2000 when delivering the provincial budget.
April 2000: “Sales tax could be good for Alberta, but a tough sell.” May 2000: “Sales tax to replace income tax recommended to the Klein government.” November 2000: “Is a sales tax a bright idea? Albertans will be asked if they prefer a sales tax over paying provincial income tax.” November 2000: “Hard sell for provincial sales tax: Opposition critics, retail store officials denounce proposal.”
As for Klein, who had, through the 1990s, cited the lowest taxes in the land as the “Alberta Advantage”…? If there were to be a sales tax, he said, it would have to go to a referendum. Regular Albertans would have to make the call, not politicians. Not him.
By the end of the 2000s, Alberta’s oil and gas revenues had collapsed in the midst of a global economic slowdown, the rise of new, non-traditional oil sources in the US, and international price-setting aimed at driving high-cost producers out of the market. A Klein-era law that had made it illegal for the province to do anything but balance its budget was tossed aside by his PC successors to allow the government to borrow money and run deficits.
October 2009: “Sales tax touted as boost for declining Alberta advantage.” October 2011: “No provincial sales tax contemplated.” February 2013: “Sales tax talk won’t go away.” January 2015: “The tax that dare not speak its name; Math adds up, but politics are complicated.”
Journal columnist Graham Thomson explained the politics of the sales tax: “It is the banana peel of Alberta politics and every year an Alberta cabinet minister manages to step on it.” And: “One of the quirks of Alberta politics is that even though there isn’t a politician in the province arguing in favour of a sales tax, we can’t seem to stop talking about it.”
“Tightening one’s belt” sounds responsible. But such arguments rarely go beyond the hypothetical.
In 2015 Rachel Notley’s NDP won a majority government in Alberta but took power just a few months before oil—priced at over $100 US per barrel the year before—bottomed out at $30. More recently, oil prices have bounced back to the $60 range per barrel. But no one forecasts those prices to get much higher through the early 2020s.
In spring 2016, during the Q&A following a speech to Calgary’s Chamber of Commerce, Finance Minister Joe Ceci was asked his thoughts on a “notional” sales tax for Alberta, given the province’s record deficits. “Oh, look, the time’s up,” Ceci quipped, before adding that his party hadn’t campaigned on introducing a sales tax and wouldn’t introduce one any time soon.
Ceci and his ministry have not wavered. In April 2017 Finance spokesperson Mike Brown announced that “…with the highest basic personal and spousal deductions, no sales tax and no payroll tax, Albertans benefit from the lowest overall taxes among the provinces.” He added that Albertans in 2016 “enjoyed a $7.5-billion tax advantage over the next-lowest-taxed jurisdiction.” In other words, the province collects $7.5-billion less tax revenue than it would if it had the tax rates of BC, the province with the second-lowest taxes. Alberta collects $13-billion less than it would if the province had Ontario’s taxes.
This “advantage” presumably exceeds whatever “disadvantage” is created by Alberta’s current budget deficits.
More recently Brown issued a statement from minister Ceci: “In the last election, our government committed to not implement a PST. We are keeping that promise. Our government is taking a thoughtful and prudent approach to the budget during this time of economic recovery.” He did not respond to a question about why a PST is something to avoid. But the statement did indicate the Notley government expects to balance its budget by 2024 by reducing spending and raising revenues through economic diversification.
In Alberta a sales tax long ago got lodged in the realm of mythology, culture and even our identity.
Alberta’s deficit for 2017–18 is expected to be in the ballpark of $10-billion. Alberta’s total debt is now estimated at about $45-billion. Notwithstanding the province’s reassurances, Melville McMillan says Albertans will eventually feel the effects in hospitals or classrooms.
“As you accumulate more debt, you have to pay the cost of servicing that debt,” he says. “It’s going to mean you have less money to spend on other things or you have to raise taxes. One way or another, Albertans aren’t used to that.”
He expects that by 2022 the Alberta government could be spending the same proportion of its revenue on paying down debt as Quebec and Ontario do now. In Ontario, for example, the provincial government spent $11.4-billion servicing debt in 2016. “If we continue accumulating debt at the quite substantial rate that we are, this will become quite burdensome to Albertans,” says McMillan.
If the “always-against-a-sales-tax-probably” positions of Alberta politicians can be mapped across nearly 30 years of Journal headlines, the “always-against-a-sales-tax-definitely” position of the Canadian Taxpayers Federation never moves. Alberta directors change, but they are always stridently opposed.
Colin Craig, the CTF’s interim Alberta director, is against a PST because, he argues, “The provincial government has a pretty serious spending problem, so it’s not really fair to go to taxpayers and ask them to pay more.” “Everyday Albertans” don’t want a sales tax, he says: “It’s not the common people thinking about a provincial sales tax, it’s more those in the ivory towers looking at the province’s finances and looking to take the easy way out.”
Amber Ruddy, the Canadian Federation of Independent Business’ director of provincial affairs for Alberta, says keeping the province PST-free is among her top priorities. Likewise, a January 2017 Fraser Institute report suggests Alberta’s PST-free status is the last-standing pillar of a crumbling “Alberta Advantage.”
If a government did want to introduce a sales tax, Ruddy says, they would have to actively campaign on it, rather than “sneak it in” at the start of a mandate. “PST is often known here as the ‘political suicide tax,’ because the first government that introduces it will definitely feel a bit of heat from the electorate on that policy,” she says.
A perhaps more compelling objection comes from Queen’s University law professor Kathleen Lahey, who, in a 2015 report for the Parkland Institute, cast serious doubt on how fair a sales tax would be for Alberta. To start, she wrote, a sales tax stands to have a greater impact on people who make little money to begin with, taking up a greater percentage of their overall income. Sales taxes don’t care about your income, your gender, your home life, your education or any of your other life circumstances. A sales tax, she suggests, is the ultimate flat tax: no matter who is buying that pair of gloves (or how much they need them), everyone pays the same percentage.
The 19 signatories who in 2016 called on the Alberta government to enact a sales tax acknowledged the argument that sales taxes are regressive. “But there are ways,” they added, “such as rebates to low-income earners, to mitigate the negative effects of a sales tax upon the poor and vulnerable.”
Kevin Taft doesn’t believe the oil industry will generate the proportion of provincial revenues it once did, and that huge cuts to provincial spending (which would certainly entail public-sector layoffs) aren’t a viable option. He calls a PST a tool for staunching the government’s bleeding. “The provincial government needs to come up with a good, reasonable communication strategy and then have the courage to sell this idea,” he says. “The people of Alberta are starting to clue in that the oil industry’s not going to pay their bills anymore, and somebody has to. And so one part of that is a sales tax.”
Taft describes Alberta as in the midst of a long-term financial crisis, one marked by unsustainably rising debt and overreliance on oil and gas. “I just don’t think there’s any way around Alberta needing a provincial sales tax, and the longer we delay this decision the deeper our problems are going to be,” he says. “This issue goes back decades. The financial structure of Alberta’s government is so out of whack.”
And that ties back not just to oil and gas prices rising and falling, but to royalties, or how much money the province collects from oil and gas producers. “Here we are in Alberta with a population roughly about (the size of) Greater Montreal, smaller than Phoenix, smaller than metro Seattle, we own more oil than all of Russia, all of the US, all of Iraq, and yet we’re giving it away so cheap that we can’t even balance our budget. And that problem has been building, I would argue, probably since Ralph Klein’s first term.”
Taft continues to urge the Notley government to bring in a sales tax.
“This is one of those problems where if you catch it early, it’s quite manageable,” he says. “And if you keep delaying the difficult decisions then the problem becomes really painful and overwhelming.”
Trish Audette-Longo is a freelance journalist. She was a staff writer for the Edmonton Journal between 2005 and 2012.