Sask. should wean itself off federal revenue
It's time to replace strings-attached deals and look at GST, says
Saskatchewan sure likes its scraps with Ottawa. Whether it be flaunting the rule of law by refusing to pay the carbon tax, or rants in federal committees that say the quiet part out loud, the appearance that our government stands up for the people of Saskatchewan is key to its political success.
But it is difficult to see how any of these scraps have a meaningful impact on the lives of the people of Saskatchewan. While we wage war over jurisdiction we do not have, the province cedes more ground to federal coffers.
Despite saying that Saskatchewan opposes carbon pricing given affordability concerns, the province plans to collect $351.3 million from its own provincial carbon tax in 2024.
More surprising is that the province will receive a whopping $3.8 billion from the federal government this year. That's $1.2 billion more than the province will collect in resource revenues, $600 million more than the provincial sales tax and $500 million more than income taxes.
Federal transfers are the single largest source of revenue in Saskatchewan's budget, and this comes with significant problems for the province in its defence of provincial jurisdiction.
Public policy analyst Sean Speer wrote last year that our provinces are fighting the wrong battles. Provinces waste time and taxpayer dollars fighting over federal jurisdiction, while ceding ground to Ottawa on strings-attached deals from health transfers to childcare.
Speer recommends that governments consider a compromise: give the GST to provinces to replace the Canada Health Transfer. After all, the two are similar in value.
In 2022, Ottawa collected $1.4 billion in GST revenues from Saskatchewan, and sent $1.5 billion back through the health transfer. This would be done in exchange for having the Canada Health Act form part of the Constitution.
Here lies an opportunity for Saskatchewan to curb federal spending power and deliver tax efficiency in the province.
Economists and business leaders have urged Saskatchewan for years to consider a Harmonized Sales Tax. Renowned economist Jack Mintz said in 2011 that the PST was making Saskatchewan uncompetitive for investors.
The Regina Leader-post editorial board urged the government to consider an HST to fix the budget in 2016. Even after reforms to the PST in 2017, the Saskatchewan Chamber of Commerce repeated calls for an HST in 2019.
The reasoning for an HST is twofold: less paperwork with one tax instead of two, and an exemption for business inputs. The GST is value-added, taxing sold goods only at the front-end. The PST, by contrast, is retail-based, which places a large and unnecessary burden on capital investment.
The GST at a five per cent rate levies $282.8 million per point in Saskatchewan, while the PST at six per cent levies $430.3 million per point.
The GST also has a larger tax credit for low-income earners, which a combined tax in Saskatchewan should keep given that the province's Low-income Tax Credit did very little to compensate the least advantaged when the PST was hiked.
Taking all that into account, to collect the same in revenue as the province does, Saskatchewan would need a combined 15.5 per cent sales tax, 4.5 points above the current 11 per cent.
In 2022, Saskatchewan spent $703 million on business subsidies. A recent study on federal business subsidies found that some 80 per cent of similar federal subsidies were waste.
If the same findings held true in Saskatchewan, combining cuts to subsidies with new output-based performance system (carbon tax) revenues could provide a three-point cut in the combined HST rate, a tax cut in 2022 of $850 million, which would be even larger today.
Saskatchewan's Chamber of Commerce suggested this year that Saskatchewan has one of the highest marginal tax rates on new investment in Canada.
If the provincial government is truly committed to growing Saskatchewan and attracting investment, while standing up for provincial jurisdiction, then it's time for us to take control of the GST and replace strings-attached deals with Ottawa.