New report recommends a re-imagined fiscal model to fix the province’s finances
Calgary, Feb. 17, 2021 (GLOBE NEWSWIRE) — Today, the Business Council of Alberta (BCA) releases a new report— Towards a Fiscally Sustainable Alberta: A Review of Provincial Government Finances —which shows Alberta’s finances are on a concerning trajectory with both an expense and a revenue problem. The report finds that simply bringing expenses in line with other provinces will not be enough to solve the challenge. Alberta must meet in the middle, addressing both revenues and expenses . Alongside expense reductions, Alberta needs a re-imagined revenue model that is right for our times, including a discussion of two key revenue options: a harmonized sales tax and provincial consumer carbon tax .
“Alberta has a serious problem,” says Adam Legge, President of the Business Council of Alberta. “For decades, governments have spent too much, and collected too little in taxes, because we could make up the difference with resource revenues. We can’t count on that in future, and our trajectory is unsustainable. We need to make some tough decisions about our revenues and expenses to bring Alberta back to a more sustainable position.”
Top highlights from the report:
- Alberta spends about 11%, or $1,300, more per person each year than Canada’s other provinces, while collecting 7% less in tax .
- For the past three decades, volatile resource revenues usually covered that gap; however, in the past five years, most of that gap has been financed through debt.
- To fully close this gap moving forward would require an increase in taxes of 34% or a decrease in expenditures of 27%.
- In the past 12 years, the Alberta government has gone from having net assets of $50 billion, to a net debt of $40 billion—a swing of $90 billion, before COVID.
- If Alberta collected as much revenue and spent as much (per person) as the average Canadian province , the provincial deficit for 2019/2020 would have been only $2.0 billion instead of $12.2 billion.
- Recommendations : We need to fundamentally re-imagine our revenue model and grow the tax base , including developing new and more sustainable revenue sources and creating the conditions needed for strong economic growth. A revenue model that is stable, fair, competitive, and simple will help us deal with our fiscal challenges today and set up future generations for prosperity.
The report recommends two key options that would generate new revenues for the province and work towards achieving stability, simplicity, and competitiveness:
- Introduce a harmonized sales tax : An HST could bring in about $1 billion for every 1% tax point in stable, predictable revenue, allowing more future resource revenue to be saved.
- Re-introduce an Alberta consumer carbon tax : At $50/tonne, Alberta could net $1.5 billion from re-introducing a provincial carbon tax, a number which will continue to increase as the federal carbon tax goes to $170/tonne by the end of the decade.
Both would require rebates or other mechanisms to maintain progressivity and protect low-income Albertans.
“This report shows that the time has come for some hard decisions on Alberta’s finances,” says Mike Holden, Vice President, Policy and Chief Economist of the Business Council of Alberta. “That means bringing our spending closer in line with other provinces, re-imagining our revenue model overall, and it means a serious discussion about topics that are uncomfortable in Alberta: sales tax and carbon tax.”
Natural resources are the backbone of Alberta’s provincial economy—they have and will continue to enable immense prosperity for the province and country. But an over reliance on volatile natural resource revenues has hurt government finances over the long term: it creates a powerful incentive to overspend in good years and leaves a gaping budget hole during down cycles.
“I want to be clear that this isn’t about any one government. This problem dates back 30 years. It’s not caused by COVID but is made worse by it, and it can’t be fixed in one budget. But we do need to have the brave conversations now,” says Legge. “It would not be right for Albertans to hand the next generation a huge debt and an unsustainable fiscal system. If we don’t take reasonable steps now to solve this problem, we are mortgaging the future of our children and our province, and we will need to take more severe action in the years ahead.”
The policy paper can be downloaded at this link: https://www.businesscouncilab.com/towards-a-fiscally-sustainable-alberta/
About the Business Council of Alberta. The Business Council of Alberta is a non-partisan, for purpose organization dedicated to building a better Alberta within a more dynamic Canada. Composed of the chief executives and leading entrepreneurs of the province’s largest enterprises, Council members are proud to represent the majority of Alberta’s private sector investment, job creation, exports and research and development. The Council is committed to working with leaders and stakeholders across Alberta in proposing bold and innovative public policy solutions and initiatives that will make life better for Albertans.
Scott CrockattBusiness Council of [email protected]