PST will cause pain but won’t fix the bud­get

Prairie Post (East Edition) - - OPINION - By Franco Ter­raz­zano

Al­berta’s fi­nances are a mess. By the end of the year, Al­berta will have the largest deficit in the prov­ince’s his­tory cou­pled with a $100-bil­lion debt tab. Al­most like clock­work, some aca­demics are rec­om­mend­ing a pro­vin­cial sales tax to pull the gov­ern­ment out of its sea of red ink.

But the pseudo sales tax so­lu­tion won’t bal­ance the bud­get. It will, how­ever, hurt many Al­berta fam­i­lies and busi­nesses al­ready struggling to get by. And Pre­mier Ja­son Ken­ney knows this.

When the feds brought in their sales tax in the early 1990s to help them with their bud­get woes Ken­ney rightly stated that “the GST’s great­est short­com­ing has been its ap­par­ent fail­ure to re­duce the fed­eral deficit.”

The fed­eral gov­ern­ment in­tro­duced the GST in its 1990 bud­get. But in­stead of tack­ling the deficit, the gov­ern­ment hiked pro­gram spend­ing from $103.5 bil­lion in 1989 to $120 bil­lion at the be­gin­ning of 1994. The deficit climbed from $30.5 bil­lion be­fore the GST was im­ple­mented to $42 bil­lion af­ter it came into ef­fect.

The deficit was elim­i­nated only af­ter “Ot­tawa’s non-mil­i­tary spend­ing was cut back more dra­mat­i­cally than at any time in our na­tional his­tory,” ex­plains the Cana­dian Cen­tre for Pol­icy Al­ter­na­tives.

We all know the adage that work ex­pands to fill the avail­able time. But for politi­cians, spend­ing ex­pands to meet the ad­di­tional rev­enue. We’ve seen this play out in Al­berta and that’s why a sales tax is a bad bet to bal­ance the books.

From 2004 to the end of 2014, the Al­berta gov­ern­ment’s rev­enue in­creased by more than 50 per cent. Had the gov­ern­ment merely in­creased spend­ing at the pace of in­fla­tion and pop­u­la­tion growth, it would have run sur­pluses ev­ery year.

In­stead, Al­berta’s politi­cians spent like oil barons and ran six deficits.

On a prac­ti­cal note, a small PST wouldn’t bal­ance Al­berta’s bud­get. A gen­eral rule of thumb is that a PST would gen­er­ate about $1 bil­lion in gov­ern­ment rev­enue for ev­ery one per­cent­age point in­crease. So, to wipe out this year’s $24-bil­lion deficit, Ken­ney would need to im­pose a 24 per cent PST. And even that wouldn’t bal­ance the books as the crip­pling tax would send Al­ber­tans, and our tax dol­lars, flee­ing for greener pas­tures.

Even if we don’t con­sider the ex­tra COVID-19 spend­ing or the lower rev­enue due to the eco­nomic shut­down, the Al­berta gov­ern­ment would still have about a $7-bil­lion struc­tural deficit. That means a five per cent PST, which would match the fed­eral GST, wouldn’t bal­ance the bud­get ei­ther. Ken­ney would still have to cut $2 bil­lion in spend­ing.

That means Ken­ney and his United Con­ser­va­tive MLAs would have to wage two wars, one with struggling tax­pay­ers and the other with gov­ern­ment union bosses that seem in­tent on fight­ing even the most mi­nor spend­ing re­duc­tions.

The five per cent PST would cost about $1,100 per Al­ber­tan ev­ery year. Imag­ine politi­cians knock­ing on doors try­ing to con­vince job­less Al­ber­tans that they should pay thou­sands of dol­lars through a sales tax, which wouldn’t even bal­ance the bud­get. This is why politi­cians from both sides of the aisle have re­jected a PST.

So how can Ken­ney tackle Al­berta’s bud­get woes? If Al­berta matched Bri­tish Columbia’s per per­son spend­ing, the gov­ern­ment would spend $15 bil­lion less ev­ery year. In con­trast, even dur­ing the pre-COVID down­turn of 2015-2018, the Al­berta gov­ern­ment brought in more rev­enue per per­son than B.C. did on av­er­age. Between 2012 and 2014, the Al­berta gov­ern­ment brought in more than $2,000 more per per­son than the B.C. gov­ern­ment on av­er­age, which trans­lates to nearly $9 bil­lion more an­nu­ally.

Ken­ney must fix our prob­lem by putting an end to more than a decade of over­spend­ing, not in­creas­ing taxes.

Franco Ter­raz­zano is the Al­berta Di­rec­tor of the Cana­dian Tax­pay­ers Fed­er­a­tion.

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