Foreword

Alberta is undergoing a painful economic transition, and this book is well positioned to inform some of the critical debates concerning the province’s financial future. Until about 2013, Alberta’s economy had been outperforming the rest of Canada’s for so long that it seemed a given. In 2005, TD Economics reported that GDP per capita in the Calgary-Edmonton corridor was a “gigantic” 47 percent above the Canadian average, as well as substantially above the average in the United States.1 By the end of 2011, and despite the lingering effects of the global financial crisis, weekly earnings in Alberta had risen 4.5 percent over the previous year and wholesale trade was up by 17.1 percent, while unemployment was the lowest in the country—even though Alberta’s population had climbed over the past year at a rate 70 percent above the national average.2

The fall from these economic heights was dramatic. Alberta’s GDP peaked in 2014, shrank over the next two years, recovered partially from 2017 to 2019, only to drop again in 2020 to a new low.3 Calgary and Edmonton vied with St. John’s, Newfoundland, for the cities with the worst unemployment rates in the country. Population growth slowed markedly as interprovincial migration turned negative.4

Provincial finances faced an equivalent upheaval. In the 2010–11 fiscal year, the Alberta government had no net debt, and its AAA credit rating was the best among Canada’s provinces.5 A decade later, the November 2020 fiscal update forecast an annual deficit of $21.3 billion. Total taxpayer-supported debt was expected to reach $97.4 billion by 2021 and soar to $125 billion by 2023.6 Predictably, the province’s credit rating was repeatedly downgraded.7

As dramatic as they are, these changes are only the early stages of a much longer and more profound economic restructuring of the province. For years, successive Alberta governments have allowed the province’s economy, politics, and self-identity to be tied to the ups and downs of the petroleum industry. At a peak, almost 40 percent of the province’s economy was directly or indirectly dependent on this one industry.8 But as the world has begun to shift away from petroleum in order to combat global warming, the economic foundations of Alberta have started to crumble. Not even the surge in oil prices in 2022 could lead to a boom in Alberta.

The truth is there has been a hole in the Alberta government’s finances for nearly six decades. As Bob Ascah notes in chapter 3, in every fiscal year since 1965–66, the Alberta government has relied on natural resource revenues to balance its books. Those revenues are no longer large enough to continue plugging that hole, and as the debt increases, the hole gets bigger.

So the great political question in Alberta has become, How should the province balance its budget?

Alberta cannot realistically hope to balance its budget simply by cutting expenses. The financial gap is too large. As Mel McMillan demonstrates in chapter 5, for the Alberta government to balance its budget by 2022–23 through cuts alone, program spending would need to be reduced by 20 to 25 percent. This would lower program spending to levels not known in more than fifty years, which is unlikely to be politically, socially, or economically acceptable.

If cuts alone are not the answer, though, then new sources of revenue will need to be found. Where will this money come from? This book provides much of the answer. An essential part of the solution to Alberta’s fiscal crisis is a sales tax.

The province has, of course, long prided itself for its low taxes and its lack of a sales tax. From 2001 to 2012, I served as an opposition member of the Alberta legislature, and every year the budget speech included an update on how much lower Alberta’s taxes were than those in other provinces. “If Albertans and Alberta businesses were in any other province,” the 2008 budget speech reminded us, “they would pay between about $10 billion to $18 billion more in taxes, every single year.”9 Similarly, the 2011 budget speech announced that Albertans would pay at least $11 billion less in taxes that year than they would in any other province. The speech did not omit to mention the absence of a sales tax: “This government remains firmly committed to maintaining the lowest provincial tax regime in Canada—with low personal taxes, low corporate taxes, the lowest fuel taxes, the highest personal and spousal tax exemptions, no capital tax, no payroll tax—and no sales tax!”10

To put the point another way, the Alberta government has been choosing to sacrifice billions of dollars in income each year. In the face of today’s fiscal crisis, Alberta’s continuing commitment to extremely low taxes seems reckless. As McMillan points out, a provincial sales tax of only 5 percent—lower than that of any other province—would have provided about $5.3 billion to the Alberta treasury in 2019–20. The “Alberta Advantage” is proving to be a liability.

The people of Alberta face some hard choices. No one is ever eager to pay more taxes. But how many schools and hospitals will we be willing to close, how many nurses and police officers will we agree to lay off, how many roads and public buildings will we allow to deteriorate before we face current realities? We can sit back and watch Alberta’s credit rating slowly decline until the province loses its capacity to borrow money in order to make ends meet. Or we can confront the need to bring our tax regime into better alignment with those in other jurisdictions.

That need is increasingly urgent, and the province cannot afford to go on dismissing the possibility of a sales tax. As this book makes clear, a moderate sales tax, combined with some measure of fiscal restraint, could put the province on sustainable financial ground while still enabling it to maintain its status as a low-tax jurisdiction. Chapter by chapter, the contributors to this book deliver an invaluable guide to the economic rationale for a sales tax in Alberta and to the issues surrounding the implementation of one.

A sales tax cannot and will not be the entire solution to the Alberta’s fiscal crisis. Nor will any other single tactic. As the authors in this collection make abundantly clear, however, it is difficult to imagine a solution that would provide the province with a stable financial future that does not include the introduction of a sales tax.

Kevin Taft