Introduction

Alberta is the only Canadian province that does not have a provincial sales tax (PST). For many Albertans, this is not only a point of pride, but an aspect of their identity. But at what cost? This book argues that it is time for Albertans and their political leaders to reconsider their anti-sales-tax stance and begin to integrate new revenue bases to ensure a more sustainable fiscal future.

Although the contributors to this collection span the political spectrum in Alberta, they all agree on one thing: Alberta needs a sales tax. Their reasons are simple. Some emphasize the brute economic merits of a sales tax. For instance, a sales tax is a stable source of revenue, especially when compared with royalties, personal income tax, and corporate income tax. The mechanisms of a sales tax are well known and understood. The cost to raise a dollar of sales tax is much lower than for other taxes, and sales taxes capture wealth and spending that other taxes miss. Others look at the social, moral, and environmental benefits of such a tax. A sales tax could help fund crucial public programs such as education and health care in the province in times of economic downturn, rather than subjecting them to devastating cuts. It could also support the province as the world turns toward a low-carbon future.

Taken together, this collection is a timely resource for politicians, policy analysts, and the general public. Its purpose is to support a broad, public, and informed discussion about the precarious reality of the Alberta government’s finances and the role that a sales tax might play in stabilizing them. Each chapter is motivated by one or both of the book’s central questions: First, why does Alberta need a sales tax? And second, if it does need one, how might Alberta’s political leaders bring about its adoption?

The “Whys” of Sales Tax

Sales tax has historically been one of the more fraught topics of political discussion in Alberta. The debate about instituting a sales tax has simmered for a very long time, especially in times of economic downturn. It is, however, often shuffled away and conveniently forgotten when Alberta’s commodity-driven economy produces vast surpluses for Alberta Treasury.

The problem is, those surpluses come and go; we can’t actually rely on commodity markets to always provide for us what we need. Most recently, the debate around a sales tax was reawakened by a steep drop in the price of oil and natural gas that began in 2014 and extended into 2016. Prices then began to recover, only to plummet again in 2020, in response to the COVID-19 crisis, and since then have climbed steadily to highs not seen in over a decade. This volatility is unsurprising: it mirrors similar patterns in earlier years, although with some exaggeration. As the latest bust-and-boom cycle illustrates, however, the price of oil remains highly unstable. Relatively short-term price rises will continue to confound Albertans and their political leaders into believing the vague promise that we can rely on the oil-and-gas fairy to show up and turn Alberta’s fiscal fortunes around. This short-term thinking is challenged by the thorough analyses offered in these pages.

Alberta’s Economic Structure and Fiscal Consequences

Alberta’s economy, in spite of having features of a diversified industrial-service economy, remains based on single-commodity production. Alberta has long been what Harold Innis ([1956] 1999, 385) termed a “peripheral economy,” supplying staples to the metropolitan regions of the world. At one time, these staples were agricultural: wheat and other grains. Prices were determined generally by supply and demand factors affected by unpredictable weather, crop yield, and occasionally financial speculation. In other words, Alberta’s finances were at the mercy of international commodity markets. Today, Alberta has different staple commodities: coal, bitumen, and natural gas. The prices of these are similarly set by international markets. This reliance on international markets tends to spell volatility for a commodity-based economy, for while there are many things that a government has within its control, commodity prices are not one of them.

Now here’s the kicker: the Alberta government’s revenue bases—that is, the sources from which it receives operational funds—are deeply tied to this volatile economy. The province relies on resource royalties and tax revenue from resource development corporations that operate in the province to fund its public programs. Alberta’s government and Alberta citizens are therefore left at the mercy of price swings in oil and gas. Some of this volatility could be mitigated by a solid and consistent savings strategy, but this, too, is something that has been unfortunately lacking in the province. Alberta governments have consistently failed to set aside sufficient financial reserves to weather commodity downcycles without resorting to heavy external borrowing and, often, deep expenditure cuts.

Ecological and Social Concerns in Alberta

Add to this the unequivocal evidence that burning fossil fuels is the primary cause of the climate crisis that we are now witnessing unfold in our back yards and around the world, and Alberta’s fiscal problems become more complex.

Increasingly, governments, investors, and financial institutions are recognizing that oil and gas extraction will have to be phased out quickly in order to achieve the goals agreed on at the Glasgow 2021 climate summit. Initial steps have included new financial disclosure requirements for corporations’ emissions and detailed plans to achieve net zero. As well, a range of institutions from central banks to pension funds, endowment funds, and insurance companies have already established divestment policies. The pressure to divest from fossil fuels is also being extended to large banks who have significant loans to the sector. All of this means that it will be increasingly difficult for fossil fuel firms to get the funding to expand production. Indeed, it is clear that Alberta’s energy industry, especially oil sands producers, are facing the prospect of stranded assets alongside massive environmental liabilities.

This crisis is problematic for Alberta because of its overreliance on fossil fuel extraction in achieving fiscal balance and funding its day-to-day operations. Because of a trend towards lower oil prices, the Alberta government has already been running large deficits since the early 2010s just to keep basic public programs running—and sometimes not even that. At the same time, we can only expect global trends towards decarbonization to continue to grow as the climate crisis becomes an ever more present aspect of all of our lives. This means that the medium- and long-term prognosis for Alberta’s finances will continue to grow dimmer unless the province begins to seriously look for alternative revenue sources.

Were Alberta less reliant on resource revenue, its budgeting would be less affected by fluctuations in the price of oil and the province would have more stable footing from which to face the coming changes in global markets. A sales tax, for reasons detailed in this volume, would seem to be an ideal candidate for creating that stability.

The “Hows” of a Sales Tax

Even though many of these “whys” of a sales tax are privately accepted by politicians and many Alberta citizens, the biggest obstacle to actually implementing such a tax is Alberta’s political culture, which is widely considered to be hostile to taxes. Politicians fear electoral defeat should they ever advocate for the tax, or even consider the idea in public. This leaves the “hows” of a sales tax for Alberta somewhat difficult to pin down. I suggest that to begin to understand how the public and their elected leaders might bring about the adoption of a sales tax, we must first understand how Albertans’ attitudes towards taxes came to be.

Political Development

Periodic attempts by government to raise or introduce new taxes have historically been met with fierce resistance in Alberta. It is this aspect of Alberta’s political culture that makes politicians cringe at the thought of electoral retribution should they ever utter the words sales tax. Salient elements of this political culture include the myth of Alberta exceptionalism, founded on rugged individualism, resentment at government intrusion, a spirit of optimism, and a sense of victimhood towards central Canadian economic and political elites.

This exceptionalism has been expressed through political discourse in Alberta, which remains dominantly conservative. Opposition to public ownership, trust in market solutions, insistence on “small” government, and faith in capitalist production are beliefs reflected in mainstream media. A corollary to the idea of small government is the deep-seated belief that taxes should be low. This idea is founded on two assertions: first, that big government “wastes money”; and second, that low taxes encourage capital investment, which leads to employment and, ultimately, a rising standard of living. These perspectives and others like them have been the rallying cries for organizations like the Canadian Taxpayers Federation, once led by a young Jason Kenney. To “prove” their claims, they point to Alberta’s gross domestic product per capita, a commonly used measure of well-being, which has historically been one of the highest in the world on average. While proof may be too strong a word in this context (as I argue in chapter 10), it is certainly true that Alberta’s reliance on resource wealth has offered limited economic evidence to persuade Alberta voters to consider the potential future need of other revenue sources such as a sales tax. Recurrent booms are mistakenly interpreted as justification for continuing low levels of taxation. As the old bumper sticker from the 1980s proclaimed, “Give me another boom and I promise not to piss it away!”—the joke being that, even in the boomiest of times, Alberta’s handling of oil revenue has not set the province up for a stable fiscal future.

With the election of Ralph Klein in 1993, antitaxation beliefs were concretized in government policies and branded as the “Alberta Tax Advantage.” The Progressive Conservative brand has become so ubiquitous that even the New Democratic Party, elected to government in 2015, sang the praises of Alberta’s low taxes while in office, and were extremely reluctant to address the subject of Alberta’s deficit challenges.

How to Change the Tides?

Given Alberta’s political legacy around taxation, how can we begin to have a meaningful discussion about implementing much-needed new revenue sources? The problem deepens when we consider the toll that two years of COVID-19 and over six years of slow economic growth have had on political discourse in Alberta. Indeed, over the past two decades, liberal democracies around the world have experienced a disturbing trend of polarization between conservative, traditional, and individualistic voices, and voices concerned with income inequality, racial injustice, and environmental degradation.

The debate on a sales tax is fundamentally a debate about the appropriate roles that the public and private sectors should play in our lives, and about what each of these sectors can control. Is the existing size of the Alberta state optimal or should its size be reduced? Do government policies ensure Albertans are given a fair share of private industry profits in oil and gas, or does the oil and gas industry control government policy (Taft 2017; Urquhart 2018)? In terms of the tax itself, what are the fiscal objectives of a sales tax? Is a sales tax to be revenue neutral and used as a means of reducing existing taxes to boost private sector investment (Bazel and Mintz 2016; McKenzie 2000), or is its purpose to address large fiscal deficits and ensure the long-term financial sustainability of government to meet the public’s demand for government services over the full commodity price cycle (Harrison 2016; Flanagan 2011)? There are no formulae that will spit out objective answers to these questions. Politicians and voters must decide. While econometric analyses of the tax’s economic pros and cons should be fundamental aspects of these decisions, our answers will also be rooted in how we answer a moral question: What kind of Alberta do we want to build for ourselves and future generations?

The Structure of the Book

The first two chapters of this collection examine Alberta’s unique economic and political landscape. In chapter 1, I give a more detailed history of Alberta’s political development from the province’s beginnings to today. This history is intended to form a foundation for understanding why Alberta’s unique political culture strongly resists taxation in general, and a sales tax in particular. In the short chapter 2 that follows, veteran provincial affairs columnist Graham Thomson provides some evidence of the political consequences of this antitax sentiment, recounting how various Alberta finance ministers have been remonstrated by premiers, the media, and the public over openly musing about a sales tax.

Chapters 3 and 4, both my own, lay out Alberta’s fiscal dilemma and its roots in both revenue and spending policies. The dilemma, I argue, is a tension between the public’s desire for high quality public services and excellent infrastructure on the one hand, and, on the other, Albertans’ exceptional belief that, almost as a birthright, taxes must be kept low. In other words, the province needs to keep spending more money without raising more money through taxes. The key to understanding this dilemma, as I argue in chapter 4, is understanding that it is not a problem of either spending or revenue, but of the push-pull dynamic between the two. To address the dilemma, Alberta must stabilize its revenue base to reliably match the steadily growing need for public service spending.

The next few chapters build the case for a PST in Alberta. In chapter 5, Melville McMillan points out the secular decline in resource revenue over the past fifty years. Drawing on economic and financial projections developed by Trevor Tombe (2018), McMillan argues that Albertans’ desire for quality public services will eventually force the Alberta government to recognize it cannot address the fiscal dilemma without a sales tax.

In chapter 6, Ergete Ferede presents a more technical analysis of the rationale for adopting a sales tax. Using historical data, Ferede examines the response of the various tax bases to the business cycle. Ferede concludes that Alberta’s general sales tax base, harmonized with the federal goods and services tax, is far more stable than either personal or corporate income tax bases.

Elizabeth Smythe begins chapter 7 by positing that good public policy is policy that reduces socioeconomic inequalities and addresses climate change. Although she acknowledges the regressivity of sales tax—a particular concern of the political left—Smythe finds that the social benefits of a broadly based tax and that the stability of such a tax as a source of revenue outweigh the costs of Alberta’s current fiscal strategies.

In chapter 8, Ian Glassford takes on the question of how a sales tax might be successfully integrated by drawing on his experience as the former chief financial officer of Servus Credit Union, a cooperative, Alberta-based financial institution. Glassford argues that voters have good reasons to be skeptical of governments’ ability to responsibly handle their money, and this skepticism gets in the way of successfully implementing taxes that could ultimately benefit them. Because of this, governments, like credit unions, must prove to their members or voters that they will responsibly handle the money that has been entrusted to them. Glassford describes a theoretical framework of PST collection and savings based on the growth of gross domestic product. By transparently communicating such a framework and making themselves publicly accountable to following it, Glassford suggests that governments could earn voter trust around the issue of a sales tax.

Ken McKenzie, in chapter 9, uses his experience over several decades as a sales tax advocate and advisor to provincial governments to argues that the time is politically ripe for a sales tax to be introduced, hinting at the fact that politicians are followers of their constituents’ political will. As conditions in Alberta continue to speed towards the need for a sales tax, political leaders, he says, would do well to get ahead of the coming “sales tax parade.”

In the last chapter of the book, I build on some of this volume’s key themes and explore how Alberta’s economic, fiscal, environmental, and social outcomes are intertwined, and how a sales tax can help support a sustainable future in the province in all of these areas. I look, too, at how these “whys” of sales tax are connected to the “hows.” Alberta’s path to a new fiscal future requires stability in provincial finances, a clear transition plan to reduce its reliance on fossil fuels, and massive investments in public education about, and engagement on, the existential issues facing Alberta today.

If Alberta is destined to play a meaningful role in the Canadian and global economies, our political and financial leaders require a dramatic shift in their thinking around revenue, taxation, and, more specifically, the sales tax. This collection outlines many ways of answering the question of why a sales tax is necessary. The “hows” are, admittedly, more complicated. While the reader will find some suggestions in these pages, the “how” of sales tax remains an issue to be solved. At the moment, no major political party in Alberta wishes to talk about a sales tax. The media and public opinion polls have labelled a PST a “political suicide tax.” This interpretation has remained unchallenged for too long. It is my hope that readers will see, through the work of this collection’s contributors, that a sales tax for Alberta is not only necessary, but inevitable. Ultimately, it will be up to all of us to engage with the issue of sales tax and untangle how it should be implemented in this province.

References

Ascah, Robert L. 2021. “Alberta’s Public Debt: Entering the Third Crisis.” Preprint, submitted July 2021. https://www.policyschool.ca/wp-content/uploads/2021/07/AF22_AB-Public-Debt_Ascah.pdf.

Bazel, Peter, and Jack Mintz. 2013. “Enhancing the Alberta Tax Advantage with a Harmonized Sales Tax.” University of Calgary School of Public Policy Publications 6, no. 29. https://doi.org/10.11575/sppp.v6i0.42441.

Flanagan, Greg. 2011. Fixing What’s Broken: Fair and Sustainable Solutions to Alberta’s Revenue Problems. Edmonton: Parkland Institute. https://www.parklandinstitute.ca/fixing_whats_broken.

Harrison, Trevor. 2016. “No Alternative to a Sales Tax.” Lethbridge Herald, 11 February 2016.

Innis, Harold. (1956) 1970. The Fur Trade in Canada. Rev. ed. Reprint, Toronto: University of Toronto Press.

McKenzie, Kenneth. J. 2000. Replacing the Alberta Personal Income Tax with a Sales Tax: Not Heresy but Good Economic Sense. Calgary: Canada West Foundation.

Taft, Kevin. 2017. Oil’s Deep State: How the Petroleum Industry Undermines Democracy and Stops Action on Global Warming—in Alberta, and in Ottawa. Toronto: Lorimer.

Tombe, Trevor. 2018. “Alberta’s Long-Term Fiscal Future.” University of Calgary School of Public Policy Publications 11, no. 31. https://doi.org/10.11575/sppp.v11i0.52965.

Urquhart, Ian. 2018. Costly Fix: Power, Politics, and Nature in the Tar Sands. Toronto: University of Toronto Press.

Part I. No Sales Tax! Alberta’s Political and Fiscal Environment