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An Alberta Provincial Sales Tax Could Help The Deficit. But Will It Ever Happen?

Experts argue a sales tax could lessen the province's dependence on shifting oil prices.

The Alberta budget was tabled Thursday, and with it a big gamble on the future of oil and gas.

The province is banking on increased oil prices and investment in the energy industry to overcome the deficit and reach balance in the next few years, including a 15 per cent increase in natural resource revenue by 2022.

“These projections I believe are credible, but they’re cautious,” Finance Minister Travis Toews said.

But there is a way to balance the budget not reliant on the fluctuations of natural resource production and investment, which are dependent on the price of oil as the world looks to move away from carbon-based fuel sources in the face of climate change. There is a way to make enough revenue to possibly avoid public sector job cuts, or implement new government policies and programs or even cut the personal income tax rate. It’s something long-discussed in Alberta but rarely seriously considered by the government.

A provincial sales tax.

According to University of Calgary economist Trevor Tombe, a provincial sales tax could help Alberta get off what he calls the “roller-coaster” of resource revenue.

“If oil prices evolve as current market conditions project them to be, then we’re looking at a deficit in 2022 on the order of about $3 billion, rather than the surplus the government is projecting. So this budget rests entirely on optimistic price projections for oil,” Tombe told HuffPost Canada.

“[But] sales taxes are among the most stable sources of revenue.”

While the three territories don’t have sales taxes, Alberta is currently the only province without some form of provincial or harmonized sales tax. That means that while consumers in Ontario pay 5-per-cent GST on most items, they also pay an 8-per-cent HST that goes straight to the government.

“Sales taxes are among the most stable sources of revenue.”

- University of Calgary economist Trevor Tombe

The sales tax rate varies across Canada, from a 6-per-cent PST in Saskatchewan to a 10-per-cent provincial tax in Prince Edward Island, New Brunswick and Newfoundland and Labrador. That’s on top of the nationwide 5-per-cent GST.

But in Alberta, it’s just GST. And none of that is going to the province.

And while low sales taxes in Alberta mean that when I was growing up in Red Deer, Alta., my B.C. grandparents would stock up on high-tax items like furniture and wine when they came to visit, it also means Alberta’s been missing a chunk of revenue many other provinces rely on.

How big of a chunk is actually directly referenced in the budget.

“If you were to match the tax rates and structures of the next lowest tax province, which is Ontario, revenues would be 14 and a bit billion dollars higher,” Tombe said.

That $14 billion would certainly help a province that just announced nearly 1,500 public sector job cuts and is largely relying on pipelines being built to fund its operations.

So if a sales tax is so great, why doesn’t Alberta have one?

A lot of it has to do with history.

The history of sales taxes in Alberta

Tombe says low sales taxes have been a “core feature” of Alberta politics for the past century.

Alberta was actually the first province to even try out a provincial sales tax, introducing a 3-per-cent tax on “ultimate purchases” in 1936. But it was scrapped the following year because of public opinion against it and then-premier William Aberhart’s government, which introduced the tax.

“Since then, we’ve never really seriously looked at it, despite the fact that there’s lots of merits to it, not just the stability, but also the efficiency,” Tombe said.

“If you were to match the tax rates and structures of the next lowest tax province, which is Ontario, revenues would be 14 and a bit billion dollars higher.”

- University of Calgary economist Trevor Tombe.

After taking power in 2015, Rachel Notley’s NDP briefly flirted with the idea of a provincial sales tax but never committed, citing public opinion against such a thing and a risk of putting undue financial pressure on working and middle class Albertans.

That is a risk associated with sales taxes. Critics argue that by directly taxing consumer goods at a universal rate, consumers end up paying more than their fair share into the pot.

But Tombe says that can be mitigated by rebate cheques similar to federal GST rebates.

“Lower income people tend to spend a higher fraction on their income on stuff,” Tombe said. “And that’s why if we were to go there, we’d have to boost the tax credit proportionally.”

Basically, Albertans’ GST cheques they get annually would receive a bit of a bump should a sales tax ever come into the province.

But how likely is Jason Kenney’s United Conservative government, which frequently pitches the value of small government and low taxes, to ever consider a sales tax? Tombe says it’s hard to predict but it would likely be presented as a “last resort.”

“The spending restraint over the next couple of years is pretty significant, especially with population growth, price increases and so on,” he said. “So once we get to about 2022, then maybe the government will have political capital to have that conversation around a sales tax going forward.”

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