With big debt, some say Alberta sales tax must be on the table
Alberta Finance Minister Travis Toews said the country's largest oil-producing province would consider new sources of revenue “down the road,” after the most recent oil-price collapse caused the government's debt to balloon to $115.8 billion. The deficit for this year is expected to reach $18.2 billion, a slight improvement over the $20.2 billion deficit for the fiscal year ending March 31.
Alberta, which celebrated being debt free in 2004, has now borrowed so much money that debt-servicing costs currently exceed non-renewable resource revenues, including bitumen royalties, and corporate income taxes, which is leading to a fresh debate about whether Alberta can afford to be the only Canadian province without a sales tax.
“I believe that it would be very appropriate and important to appoint a revenue panel to test the efficiency and appropriateness of our revenue structure, but right now we're focused on the job at hand,” Toews told reporters during a briefing before tabling Alberta's budget for the 2021/2022.
He said a panel to review the province's revenue mix could be appointed in the future, after Alberta has managed the COVID -19 pandemic and an economic recovery is underway.
“Right now is not a time to even be considering major revenue adjustments or tax increases,” Toews said, adding a change in the province's tax structure could affect the province's economic recovery.
The province now pays more to service its debt than it earns in corporate income taxes — and that trend is expected to continue through the budget's forecast period to the end of 2023/2024.
Corporate income taxes fell to just $2.2 billion last year as oil prices plunged while debt-servicing costs rose to just under $2.4 billion after the COVID-19 pandemic and the unprecedented fall in oil prices caused a collapse in Alberta's revenues.
Debt-servicing costs are now the fifth-most expensive provincial government expense item after health care, education, advanced education and social services spending.
There are growing calls for Alberta, whose budget is highly dependent on oil and gas prices and revenues, to consider taxing consumer spending as the province's budget has deteriorated.
“Put simply, Alberta has both a revenue and an expense problem,” Business Council of Alberta chief economist Mike Holden wrote in a report published earlier this month, which said a five per cent harmonized sales tax (HST) would raise $5 billion for the province.
Still, the Business Council of Alberta said the province should make cuts to bring government spending in line with other provinces and that a sales tax should be considered after an economic recovery.
The oil-and-gas-rich province's fiscal situation has deteriorated in recent years and the budget shows Alberta is expecting an $18.2-billion deficit followed by an $11-billion deficit in 2022 and an $8-billion deficit in 2023. The deficit stood at $20.2 billion last year.
Alberta's government is budgeting under the assumption that West Texas Intermediate oil prices will average US$46 per barrel this year. Even if oil trades at an average of US$55 per barrel this year, the government will still face a massive deficit of $15 billion.
The WTI benchmark closed above US$63 per barrel on Thursday.
“While balancing the budget remains a high priority for this government, the pandemic and resulting economic realities have significantly impacted the revenues of the province and will delay the timing of a balanced budget,” Toews said.
Toews stressed that the province's oil price estimates were conservative and that Alberta needed to rein in spending because previous governments spent beyond what record-setting oil prices could pay for.
“Even in years with $100 per barrel oil, governments in this province could not balance the budget,” he said.
“(But) Albertans continue to face one of the most difficult times in our history. We're ensuring that we're resourcing our health-care response adequately to meet the pandemic challenge (and) we're positioning the economy for growth and a rebound.”
The province, which experienced the sharpest recession in Canada last year with a 7.8 per cent contraction in real GDP, will experience only a modest economic recovery of 4.8 per cent real GDP growth this year and unemployment is expected to remain high at 9.9 per cent in 2021, 8.4 per cent in 2022 and 7.3 per cent in 2023, according to Alberta government forecasts.
By comparison, Saskatchewan and Newfoundland and Labrador, which also pull in significant revenues from the oil and gas industry, experienced smaller economic contractions of 4.7 per cent and 4.6 per cent last year, according to recent RBC Economics estimate data.
Alberta's unemployment rate will only reach PRE-COVID -19 levels in 2024, when the unemployment rate is expected to average 6.3 per cent for the year.
In an attempt to spur an economic recovery, Toews announced the province would spend $3.1 billion this year on sector strategies including a technology and innovation strategy, a tourism recovery plan, an aviation and aerospace strategy and strategies for the agriculture, pharmaceutical and energy industries.
Spending in these areas include $20 million in virology research at the University of Calgary, $28 million to support geothermal development in the province and $449 million in spending on initiatives to reduce the province's carbon emissions.