TD Bank joins call for tax, fiscal reform in Alberta
A TD Bank report outlining options for Alberta’s provincial budget — published Thursday, one week before it’s to be brought down by the government — gives further heft to the voices increasingly calling for meaningful fiscal reform.
It should be instructive that messages like one delivered by Premier Jim Prentice at a private function last weekend — where he reiterated his government’s intention to keep Alberta the lowest- taxed jurisdiction in the country — garnered no applause from the audience. And with good reason. Without using the equivalent of a blunt instrument, the TD report is unequivocal about Alberta’s need to reform its tax structure, making the case that the personal flat tax now in place is not as beneficial as first thought.
“You want a tax system that is simple, efficient and that’s part of the reason the government went to that flat tax structure, but in recent years there is a growing body of research that shows the progressivity of the tax system does matter,” said Derek Burleton, vice- president and deputy chief economist at TD Bank and co- author of the report. “Is the tax system progressive enough in Alberta? I think that relative to other jurisdictions it would appear to have less progressivity.”
It’s no surprise Burleton doesn’t stop at the need to look at a progressive tax structure, but is also in the camp of those who say Alberta needs to take a hard look at a consumption tax.
“It’s really something they need to consider ... and we are not talking about a massive sales tax,” he said. “It’s spread out over a lot of consumers and you could address issues of regressivity through the tax system, but I think there is a real opportunity.
“The Alberta government needs to shift its attention longer term on reducing its reliance on volatile, non- renewable resource revenues as a funding source for operating spending, and in turn, build savings for the future,” the report states.
Given there is no effective opposition it can be argued that the notion of the existence of political inability to put in a sales tax is more a perception the government has constructed, rather than a reality.
Another emphasis of the report is the importance of focusing on infrastructure spending — for two reasons.
One, if the province pulls back its spending plans as the private sector continues to pull back daily, it will make the current economic situation worse.
Its second reason is evidencebased in terms of the economic return on infrastructure spending: According to International Monetary Fund studies, a one per cent increase in public investment increases output by about two per cent in the same year.
When productivity improvements are key to long- term economic growth — especially in the face of an aging demographic — it’s tough to ignore the infrastructure argument.
Burleton suggests the impending slack in the construction market — a separate report this week from the construction industry forecast a slowdown in Alberta could stretch three years — presents an opportunity since there won’t be labour shortages pushing up costs.
There are also warnings against the government opting to sell assets as a way to bridge the current revenue gap, which Prentice has forecast at $ 7 billion but could be even higher if oil price weakness persists.
When asked if this includes things like privatizing the Alberta Treasury Branches or liquidating the Heritage Savings and Trust Fund, Burleton says it encompasses all of the province’s assets.
The reason for this is that selling assets provides a onetime gain but doesn’t solve the longer- term issues, namely the fact Alberta is too dependent on resource revenues.
Rather than focus on the revenue shortfall of $ 7 billion, the TD report also suggests the government focus on the structural deficit, which could be between $ 4 billion and $ 5 billion.
It probably should be explained that a structural deficit is a deficit that persists. It is usually financed by borrowing and the concern is that over the longer term, the net effect is an accumulation of debt. The government wants to guard against that, as it should.
What it should not do, however, is starve departments and ministries of funding that will have to be made up at a later date.
What this will require, the TD report states, is a very careful analysis of where system inefficiencies exist, where savings can be realized and the role alternative delivery methods could play in achieving these goals.
Whatever comes down in next Thursday’s budget, no one should expect a quick fix because what’s needed are some long- term solutions. The fact the government is coming out with a multi- year budget is a step in the right direction. However, it’s the details that emerge that will tell the real tale.
And judging from the chatter around town, there are high hopes the government will have the courage to take Alberta on a new path toward long- term financial sustainability and off the roller- coaster ride that has gone on far too long.