An advantage no more: Alberta needs a sales tax, economists argue

With the Alberta government set to hand down its much anticipated budget on Thursday, there have already been repeated warnings about the size of the provincial deficit, as well as many promises on how the government plans to tackle it.

In a 15-minute televised address last Thursday, Premier Rachel Notley said the government will cut costs while still investing in public services and infrastructure.

It is not clear how that will be accomplished, but we do know what the budget won't include — any kind of a provincial sales tax.

• Provincial sales tax: majority of Albertans opposed, poll finds
• Finance Minister Joe Ceci admits Alberta deficit to hit $10.4 billion

Alberta Finance Minister Joe Ceci confirmed that in February when he was asked how the government was planning to bring in more revenue.

Ceci began by jumping to what is not on the table: a sales tax or, as he referred to it, "the one we do not name."

While the topic of PST remains the Voldemort of provincial politics, increasingly there are calls from economists who want to see one implemented.

In February, a group of 19 academics penned a letter in the Edmonton Journal, calling on the government to adopt a harmonized sales tax, arguing that it is not only a necessity, but it is already part of the "fiscal fabric" in all other provinces.

"If you ask individuals, 'Would you like to pay more taxes?' they say, 'No.' But what other options do we have?  How do we come out of this problem?" says Ergete Ferede, an economics professor with Edmonton's MacEwan University and one of the signatories of the letter.

Ferede says that if the province were to implement a five per cent sales tax, which is the rate in neighbouring Saskatchewan,  Alberta would generate roughly $5 billion. That is half of the province's projected deficit

"We need to have this discussion sooner or later," he says, but adds he is not surprised the government quickly shut down the group's plea.

"All political parties, all colours argue that having a sales tax in Alberta, it is political suicide."

Alberta was a PST pioneer

Alberta is the only province in Canada without a provincial or harmonized sales tax, but it was also the first province to impose one.

Back in 1936, in the midst of the Great Depression, Alberta was drought-stricken. Grain prices had collapsed and provincial finances were in shambles.

Alberta's new Social Credit government, led by William "Bible Bill" Aberhart, passed the Ultimate Purchasers Tax that established a two per cent provincial sales tax.

It was repealed the following year after public pressure.

Fast forward 80 years, and Alberta's books are crippled by low energy prices, but there is still no public appetite for a sales tax. A poll conducted in January by Mainstreet Research (formerly known as Mainstreet Technologies) found that the majority of Albertans don't want to see the government use a PST to make up its revenue shortfall.

The 'Alberta advantage'

Selling the idea of a sales tax in the province is particularly difficult because its very absence is part of what has been billed as the "Alberta advantage."

But Jack Mintz, who is with the School of Public Policy at the University of Calgary, argues that political catchphrase doesn't ring true anymore.

"I think that Alberta not having a sales tax has created an Alberta tax disadvantage," he says. 

Mintz has been advocating tax reform in the province for years. In September 2013, he co-authored a paper which concluded that a harmonized sales tax would greatly enhance Alberta competitiveness.

Today he believes the current government should consider something bold, like a nine per cent HST in Alberta, with four percentage points going to the province and the federal government collecting its five per cent GST.

He says that would generate roughly $4 billion for Alberta. Half of that could go toward closing the revenue gap, and the rest could go towards cutting corporate and personal income tax, which the NDP government recently raised.

Mintz says by drawing a line in the sand, Alberta's governments have denied themselves one of the "best taxes." If it is coupled with credits for low-income earners, he says, the sales tax would apply equally to everyone.

"At some point Albertans are going to realize that if If they want to have schools, if they want to have hospitals, if they want to have a good life … they have to raise taxes to do that, and they need to pick taxes that will do the least harm to the economy."

Mintz believes the staunch opposition to a sales tax in Alberta is beginning to soften, but he has no illusions that one will be adopted any time soon.

So the questions remains, just how will the budget deal with the looming $10 billion deficit?

"How is the province going to get out of it?" Mintz asks. "Besides hoping that oil prices come back up, which has been, unfortunately, what previous governments have done."