Revenue options for Alberta

It appears the government has finally come to the realization that it can no longer rely on natural resources to generate the revenue required to consistently balance the budget. It needs to develop a tax structure which will generate a reliable revenue stream. The vast majority of revenue derived from royalties, land sales etcetera could then be put into the Heritage Savings Fund for the benefit of future generations (the Norwegian model).

It appears the government has finally come to the realization that it can no longer rely on natural resources to generate the revenue required to consistently balance the budget. It needs to develop a tax structure which will generate a reliable revenue stream. The vast majority of revenue derived from royalties, land sales etcetera could then be put into the Heritage Savings Fund for the benefit of future generations (the Norwegian model).

The big question facing the government is how to revise the tax structure to generate this tax revenue and at the same time to survive politically.

Introducing a sales tax is not the answer. Yes, a sales tax could generate sufficient revenue to balance the budget but according to legislation passed by a previous PC government, a referendum is required prior to the introduction of a “new” tax in Alberta. A sales tax would apply to all Albertans but would fall disproportionately on middle and lower income individuals. Since middle and lower income individuals make up the vast majority of Alberta citizens, this type of tax could be a difficult sell for the government.

There is a way to generate the required revenue and to survive politically without introducing a “new” tax. Back in 2001, the Ralph Klein government gave a huge gift to the wealthiest Albertans. Klein introduced the flat tax on income. Under the flat tax, wealthy Albertans pay less tax than they did previously and lower- and middle-income Albertans pay more. Reverting to a previously existing tax is not the same thing as introducing a new tax and it may not be necessary to hold a referendum in order to do so. Even if a referendum is required to revert to the old progressive tax structure, it would be much easier to sell the change to the vast majority of Albertans who would be the beneficiaries.

The benefits of reverting to the previously existing progressive tax structure are as follows:

l The additional revenue generated annually would allow the government to not only balance the budget but also run a surplus in normal years. The Parkland Institute at the University of Alberta estimates this additional annual revenue to be in excess of $6 billion.

l A consistent and reliable revenue stream would be created.

l The need for a referendum would probably be eliminated.

l The flat tax, which places a higher tax burden on lower and middle income Albertans, would be eliminated. The “Alberta Advantage” would no longer just benefit the wealthiest Albertans.

l A sales tax, which has a greater negative impact on those with lower and middle incomes than those with much higher incomes, would not be required.

l The tax system would again be in line with the systems in place in almost every tax jurisdiction in the industrialized world. I seriously doubt Ralph got it right and the rest of the world got it wrong.

l Alberta would still be able to brag about having no sales tax and the lowest overall taxes in Canada. Having the lowest taxes does not have to mean having the lowest by many billions of dollars.

l Implementing a sales tax would require the creation of a massive new administrative bureaucracy and place a huge burden on thousands of companies which would have to collect and remit the tax. None of this would be required if the flat tax was replaced by the old progressive model.

There are way more Albertans in the lower- and middle-income brackets than Albertans in the highest income bracket. As Albertans with lower and middle incomes would benefit significantly from the elimination the flat tax, this would be an easy sell to the electorate.

I believe the consensus in Alberta is that the rich have had a nice gift for the past 14 years and it is time for them to start paying taxes at a progressive rate again, just like all other Canadians. Remember every vote is equal in Alberta. You would become a hero to the people of Alberta by solving your two big problems with one stroke.

Michael O’Hanlon

Red Deer

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