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Viewpoints: It’s time to talk revenue reform

February 13, 2018 Ricardo Acuña, Parkland Institute

As the provincial government prepares to release its budget for the 2018–2019 fiscal year in a few weeks’ time — the last full budget before a projected spring 2019 election — Albertans will hear significant talk about debt, deficits, belt-tightening and a plan to eventually return the province’s finances to balance. What Albertans won’t hear, however, is any mention of Alberta’s chronic revenue problem or the need to radically reform the province’s tax system.

This is not surprising given that both the governing NDP and the opposition UCP have stated unequivocally on numerous occasions that they will neither be raising income taxes nor considering the introduction of a provincial sales tax. While not surprising, the absence of a broad and mature conversation about revenue reform should be a serious concern for all Albertans who are worried about the long-term financial viability of their province.

The reality is that spending is not Alberta’s major problem. Alberta’s total program spending per capita is actually in the middle of the pack compared to other provinces, with some spending less and others spending significantly more. When you look at Alberta’s spending as a percentage of gross domestic product (GDP), a technique often used by economists to compare spending between jurisdictions with very different economies, our spending is the lowest in the country.

Alberta’s tax revenues, on the other hand, are nowhere near those of other provinces on either a per capita or a GDP basis. According to the provincial government’s own calculations, taxing Albertans at the same levels and on the same basis as British Columbia, the next lowest taxed province, would generate an extra $8.7 billion in revenue for the province.

In the 1999–2000 budget, the last full year before Ralph Klein’s drastic changes to our individual and corporate taxes took effect, individual, corporate and other taxes combined generated enough revenue to cover 53 per cent of provincial program spending. Last year total revenue from taxes, including the carbon levy, was only enough to cover 38 per cent of provincial program spending. Even in 2005–2006, at the height of the provincial bitumen boom, all individual, corporate and other taxes combined were only generating enough revenue to cover 41 per cent of program spending.

It is worth noting that in that same year, 2005–2006, natural resource revenues generated enough money to fully cover 54 per cent of the province’s program spending. The nature of the problem becomes crystal clear with the realization that last year that number was less than six per cent.

For years Albertans have been able to enjoy the lowest taxes in the country because the cost of our public services and infrastructure — our schools, hospitals, universities and roads — was being subsidized by revenues from oil and gas production. When the price of oil went up, the government ran surpluses. When the price of oil went down, the government ran deficits. And after 2015, when the price of oil completely collapsed and stayed down, the government began going into debt.

This trajectory clearly highlights the irresponsibility and unsustainability of relying on volatile and unpredictable natural resource revenues to pay the bills rather than tax revenues that are much more stable and predictable over the long term. This is especially the case given that resource economists and analysts around the world have made clear that we are not likely anytime soon to see oil prices rebound to the heights they occupied 12 years ago. Of course, the other consequence of subsidizing low taxes with oil and gas revenue is that we have nothing to show for our natural resource wealth in terms of a lasting legacy.

Norway provides a good example of what happens when a jurisdiction uses tax revenue, rather than oil wealth, to fund public services and infrastructure. The Norwegians were able to weather the latest global oil bust better than any other oil-producing country on the planet, and by saving their natural resource revenues rather than spending them, they have been able to build up a sovereign fund worth approximately $1 trillion.

By contrast, in Alberta we are running deficits of more than $10 billion a year and have a savings fund that is currently worth less than half the value of our accumulated debt.

For all these reasons it is critical that Albertans embark on a serious conversation about significant revenue reform in the province and how we implement it. There are numerous options, including a sales tax, increased progressivity in our income tax, and increased corporate and business taxes. Whatever the preferred option, if we don’t start pushing that conversation, then our politicians never will. And if they don’t start working to fix our revenue system soon, we will all pay the price through inferior public services and infrastructure. ❚

Ricardo Acuña is executive director of the Parkland Institute, a non-partisan public policy research institute situated in the faculty of arts at the University of Alberta.

This opinion column represents the views of the writer and does not necessarily reflect the position of the Alberta Teachers’ Association.

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