Alberta needs sales tax: report
With Alberta’s economy expected to struggle with low oil prices, high spending and a string of forecast deficits, the Conference Board of Canada urged the province Tuesday to introduce a retail sales tax.
“With royalty revenues unlikely to reach the levels seen prior to 2015-16, and spending cuts unlikely, the province is expected to run up a significant amount of red ink,” said the report titled Low Oil Prices Keep Balanced Budget Out of Reach: Alberta Fiscal Snapshot.
The economic think-tank said the province should not continue relying on royalty revenues to pay for program spending. It urged the government to bank a significant share of royalties to limit the massive swings in revenue, while finding other sources of revenue.
“One such method that is at the disposal of the government is a retail sales tax,” the report said. “While politically unpopular, a comparably low tax rate on consumption could significantly help fill the hole left by royalty revenues.”
Alberta’s NDP government has repeatedly ruled out introducing a sales tax.
In mid-April, Premier Rachel Notley reiterated her commitment not to introduce a sales tax during her term of office, but said it may be something Albertans may choose to consider in the future. She said a sales tax would not be good for the economy in the current downturn.
But Matthew Stewart, the conference board’s associate director of national forecast, said the province needs to wean itself off royalty revenues, which account for a huge share of the budget, but are highly volatile. It should be setting them aside for tough times, he said.
“When bad times happen, that money is already there and instead depend more on stable revenues,” Stewart said. “The most stable revenue and the ones that make the most economic sense are consumption taxes. I know they’re not popular, but look what happens when you depend on royalties and they fluctuate incredibly.”
The Alberta government expects its deficit to total $10.4 billion this fiscal year and $8.4 billion in 2018-19. Finance Minister Joe Ceci has said Alberta won’t be back in the black until 2024.
Despite its budget shortfall, the conference board report said Alberta is avoiding large-scale cuts to its program spending by planning to limit health and education spending to levels below demand growth.
Besides more revenue sources such as a sales tax, Stewart said Alberta needs to find cost efficiencies in its spending.
“We don’t see a major pick up in oil prices anytime soon, so Alberta’s going to continue to struggle to bring their deficit into line and unlike other provinces, Alberta’s chosen not to cut spending but maintain spending as much as it possibly can and then run a huge deficit over the next couple of years,” Stewart said.