A sales tax in Alberta?

No choice for Albertans.

Darryl Dyck/CP

Darryl Dyck/CP

After five consecutive deficit budgets and with a sixth looming, Alberta risks losing its distinction as the only debt-free province. (That eventuality has so far been kept at bay by a rapidly depleting Sustainability Fund.) Cuts to the highest per-capita spending in Canada will doubtless be part of the budget Premier Alison Redford unveils on March 7, but a shortfall on the revenue side, namely oil and gas royalties, has prominent Albertans calling for a more stable source of funding: a provincial sales tax.

To date, the province’s energy wealth has made such a tax unnecessary and, in the minds of many, come to define the “Alberta advantage.” But Alberta heavy oil is sometimes fetching as little as half the world price due to the competition from U.S.-produced shale oil and a shortage of pipelines to get the crude to the coasts and other refining markets. This so-called bitumen bubble threatens in the coming fiscal year to leave a $6-billion hole where the province’s resource revenues used to be.

Economists agreed almost unanimously at a recent provincial economic summit that a consumption tax would help level out the peaks and valleys of provincial revenue tied to energy prices. Combined with a decrease in personal income tax, a sales tax would lead to increased investment and economic diversification while capturing spending from out-of-province visitors, argued Dylan Jones, president of the Canada West Foundation, a Calgary-based think-tank. “I see a consumption tax as a way of Albertans paying more of their own way now so we can save for the future so that our grandchildren are able to take advantage of the sale of our oil assets.”

George Gosbee, president of AltaCorp Capital, proposed a variable tax linked to the differential between the price of Alberta heavy oil and the North American benchmark price, which citizens may find more palatable. “I would call it the differential sales tax, or the DST,” he said.

Critics of a sales tax, like Richard Truscott, Alberta director of the Canadian Federation of Independent Business, point out that sales-tax freedom is part of Alberta’s brand. That status was eroded when the federal government imposed the GST, supporters counter. Regardless, Public Interest Alberta executive director Bill Moore-Kilgannon said a sales tax will meet political resistance from both the left and the right because many see it as a regressive tax that punishes the middle class. University of Calgary economist Jack Mintz, a sales tax proponent, plans to publish an analysis this spring to illustrate the impact of sales tax on income classes and the treasury, but even he doubts it will be embraced. “Tax reform is never easy,” he says. “You have to have a very committed government to do it.”

Redford has said repeatedly a sales tax is not on the agenda. Even if she changes her mind, by law her government would have to take it to a referendum. Gosbee thinks that may be the best way to engage Albertans in a discussion about the pros and cons. “It is the Holy Grail, and I think it’s beneficial the government doesn’t have to make the decision by itself. At least if you have a referendum, you get all the issues on the table and better educate the province.”

If Alberta is to win the support of voters to accept a tax increase of any kind, it must first convince them it will not just lead to increased spending. That will be a hard sell for Redford’s red Tories. But if the province’s resource take doesn’t improve, some form of tax hike is inevitable.