Alberta budget

It’s time to end Alberta’s Revenue Disadvantage

Will the NDP’s first budget take Alberta off the resource revenue roller coaster?
Photo: Don Voaklander

Every year for the past several years, the Alberta government’s budget documents have included a graph titled Alberta’s Tax Advantage. The graph shows how much revenue the government would raise if it had the same tax structure as each of Canada’s nine other provinces.

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The graph ought to be more appropriately titled Alberta’s Revenue Disadvantage. Being starved of revenue is not an advantage. It has led to large classroom sizes, long wait times to get into seniors’ care, and limited capacity to bring in other needed reforms, such as accessible, affordable, high-quality child care.

It has largely become a consensus opinion in Alberta that, given the instability in world prices for our non-renewable resources, the province would be wise to cease using resource revenues for operational costs and instead either invest them in savings for the future or spend them on capital projects. Former premier Jim Prentice’s budget — his last act in the legislature prior to the election — did include some marginal changes to revenue, but it was far from removing those roller coaster energy revenues from Alberta’s operating budget.

Fast forward to the present, and NDP Premier Rachel Notley is faced with the same challenge as she gets set to introduce her government’s first budget on Tuesday, Oct. 27. Over the past 10 years, 27 per cent of the government’s total revenues have come from energy royalties.

NDP government makes changes

The Alberta NDP government has now held office for nearly six months and has implemented several significant parts of its election platform.

It scrapped Alberta’s flat income tax, which had Albertans of all income levels paying the same tax rate of 10 per cent, and replaced it with a progressive income tax system that increased taxes on individuals with income of over about $140,000 per year. It raised corporate taxes by two per cent, a move Prentice’s previous PC government knew was wanted but refused to implement.

It boosted Alberta’s minimum wage from $10.20 per hour to $11.20 per hour this year and continues to assure Albertans it will reach $15 per hour by 2018. It also began phasing out Alberta’s two-tier minimum wage, which has servers of alcohol paid less than other workers. The differential will be fully eliminated next fall.

It banned corporations and unions from contributing to political campaigns at the provincial level and has struck an all-party committee that is tasked with recommending other reforms to our electoral system by next fall.

It rolled back the previous PC government’s cuts to health care, as well as the decision not to increase education funding for enrolment growth.

It has struck review panels to recommend policies to address climate change and to reform the province’s oil and gas royalty systems. The government is expected to hear back from the climate change panel soon and will announce the resulting climate change strategy before the meetings in Paris at the end of November. The royalty review will be completed by the end of this year, and the resulting changes will come into effect at the beginning of 2016.

In short, our new government has made many significant changes already in a very short amount of time. The Wildrose official opposition has bizarrely claimed the NDP “duped” Albertans by following through on their campaign promises, something that was a rarity under previous governments.

Wildrose Finance Critic Derek Fildebrandt even said the NDP platform “was never actually meant to be implemented as real policy.” The comment is pure gold for the other parties, who are tucking it away until the Wildrose release their own platform in 2019.

When the NDP crafted its platform it was well aware of the province’s troubling fiscal situation, with falling oil prices and royalty revenues. In a televised address to Albertans just prior to the May 2015 election call, Premier Jim Prentice said Alberta needed to “get our program expenditures off the energy revenue rollercoaster and make our revenues more secure.”

Alberta’s structural deficit

Even the progressive income tax and corporate tax increases the new government introduced come nowhere near removing energy royalties from the equation in the province’s operating budget.

The government’s last fiscal update pegged operating expenses for the current year at $43.4 billion and total expenses at $50.2 billion. Its projected revenue was $44.3 billion, and that includes $3.6 billion in non-renewable resource revenue. Total tax revenue this year is expected to be $22 billion, and the NDP government’s platform projected its revenue changes to bring in $1.3 billion more than the PC budget would have.

That is the current situation with energy resource revenue in the equation. Finance Minister Joe Ceci has projected this year’s operational deficit to be about $6 billion. Even without taking existing levels of non-renewable resource revenue out of the operational budget, research from the University of Alberta’s Parkland Institute has shown that, structurally, Alberta actually needs about another $10 billion per year in revenue to balance the books.

Alberta's Revenue Disadvantage

Ten billion is a large number, but when it is put into context, it is not surprising. I return now to Alberta’s Revenue Disadvantage. The graph pictured above shows how much revenue Alberta would raise if it had the tax systems of Canada’s other provinces. The lowest on the scale is British Columbia’s tax system, which would raise Alberta approximately an additional $11 billion, and on the high range, Nova Scotia’s tax system would raise nearly $24 billion in additional revenue.

Alberta’s revenue picture looks so different from any other province because we are so reliant on non-renewable resource revenue. So for our premier to say we need to get off the energy revenue roller coaster means a fundamental shift in mentality. We need to stop being proud of how little revenue our government has to address these problems.

It’s time to talk about our tax system

For the first time in a long time, Alberta has had a province-wide discussion about our tax system.

Albertans voted a party into power on a promise to increase the corporate tax rate and implement a progressive income tax. And Albertans’ opinions on taxes are not what they used to be (or perhaps they were misread all along).

The Pembina Institute recently released a public opinion poll to gauge Albertans' views on a variety of environmental policies, and they found that support for an economy-wide carbon tax in Alberta was 50 per cent. If revenue raised from such a tax went into infrastructure and community projects, support for it jumped to 72 per cent. And most shockingly of all, the least popular use for the revenue from such a tax was to reduce personal income taxes (with only 20 per cent strongly supporting it and another 30 per cent somewhat supporting it).

Albertans understand we cannot rely on resource revenue to provide stable funding for health care, education, and other programs important to a healthy, well-functioning society. They are more open than ever before to discussing how we collectively pay for the things we value as a society. As Canada’s former Clerk of the Privy Council Alex Himelfarb says, paraphrasing American jurist Oliver Wendell Holmes Jr., “taxes are the price we pay for civilization.”

We need our new government to lead an open conversation with Albertans on what our operational budget should look like without resource revenues in the equation, and that discussion needs to begin now. It is time for Alberta’s Revenue Disadvantage to come to an end.

Joel French is the executive director of Public Interest Alberta.
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