MacKinnon: In pandemic, there are higher priorities than adding taxes

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The Alberta Business Council has made a convincing case for Alberta to diversify its revenue sources beyond volatile and declining resource revenues, but its recommendations raise some questions. Should Alberta move its tax levels to those of comparable provinces? Has the time come to impose a provincial carbon tax and harmonized sales tax?

The Blue Ribbon Panel on Alberta’s spending looked at both spending levels and outcomes, and we found, for example, that comparable provinces spent less on health care while achieving superior outcomes. But is it clear that the tax mix and levels of comparable provinces produce superior results? Business investment in Canada relative to comparable countries has declined dramatically since 2014 as has Canadian competitiveness, which suggests that rather than merely moving Alberta tax levels to those of comparable provinces, the government should assess all tax options and determine the best mix and level to provide government revenue and encourage economic growth.

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It is a curious time to be recommending a provincial version of the federal carbon tax before the Supreme Court decision on the constitutionality of the federal tax and before a federal election in which the official Opposition will probably promise to abolish the tax. Carbon taxes are not the only way to reduce emissions and all options should be considered if the federal carbon tax is abolished.

Provinces like Saskatchewan have relied on a provincial sales tax paid by consumers and businesses alike to provide significant government revenue. However, the business council is recommending a harmonized sales tax, which involves providing tax rebates to businesses. When I was Saskatchewan finance minister, we considered an HST, which has the advantage of making businesses more competitive, but rejected it since relative to a PST, an HST shifts the burden of taxation from businesses to consumers and results in significantly less government revenue.

Imposing a provincial carbon tax and HST present major political challenges. In the last election, the current government stressed that it would not impose either a sales tax or a carbon tax.

Governments that renege on their commitments fuel political cynicism and often incur the wrath of voters. Consider the fate of the British Columbia government of Gordon Campbell. In 2010, the government ignored previous election commitments and imposed an HST. Public opposition was so extensive that the government had to reverse course and reinstate the PST, a move that did not inspire investor confidence in the B.C. tax regime.

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Changing Alberta’s tax regime is complex and has long-term consequences. All options need to be considered and persuading voters of the need for change is critical. For instance, voters need to be persuaded of the merits of a sales tax; concerns about governments continuously raising rates need to be addressed, perhaps by promising that any rate increases would need approval in a referendum and compromises need to be considered; maybe other taxes need to be reduced to offset a sales tax.

Getting public support for such major tax changes takes time and timing is essential. Will voters be open to paying higher taxes during a pandemic with high levels of unemployment and many small businesses scrambling to survive?

Currently, provincial governments are overwhelmed by the daunting tasks of managing the pandemic and arranging the logistics of the most massive vaccinations in Canadian history. The other priority that demands immediate attention is getting people back to work, with the necessary supports and retraining opportunities, and kickstarting the economy by incentivizing new business investment, a task that is not helped by the prospect of future tax increases.

The most opportune time for a thorough review of Alberta’s revenues would be when the pandemic has passed, and the economy is stable and growing. Then, the government and Albertans will be able to devote the necessary time and attention that such a major change requires.

Janice MacKinnon is a former Saskatchewan finance minister and an executive fellow at the University of Calgary’s School of Public Policy.