Ted Kouri is the president of Incite and a co-founder of The Next30. Trevor Tombe is associate professor of economics at the University of Calgary and research fellow at The School of Public Policy.
Alberta’s fiscal challenges are well-documented. Since the 2008 financial crisis, the province has balanced our budget only once, and for the past six years, our annual deficits have ranged from $6-billion to $10-billion. While the COVID-19 pandemic will certainly make things worse, the core of our fiscal challenge predates this crisis and results from choices made by successive Alberta governments over the course of decades.
That fiscal challenge boils down to this: Alberta spends more per capita than other provinces, all while taxing significantly less. And while historically, the province has been able to fund this luxury with resource royalty revenues, continued volatility and expected lower commodity prices going forward mean that path is no longer sustainable.
On the revenue side, Alberta’s budget stands apart in relying so little on taxation. Less than 40 per cent of our overall spending is financed by taxes, compared with more than 50 per cent in other provinces; fears about Alberta’s relative competitiveness have made the idea of new taxes unpalatable to successive provincial governments. If Alberta simply copied the tax rates and structures in British Columbia, the province would be generating $17.5-billion more each year – meaning that rather than being faced with a massive deficit even before COVID-19, we would have been working with a surplus.
On the spending side, Alberta devoted nearly $13,000 per capita toward delivering public services last year as compared with $10,500 in Ontario, $11,000 in B.C. and more than $12,000 in Quebec. Health-care spending and higher public-sector salaries are the largest drivers of this gap.
The bad news is that, when taken together, the structural fiscal challenge that Alberta must face is approximately $10-billion a year. The silver lining, such as it is, is that a challenge so huge and broad means we have a number of options for confronting it; we can increase our revenues from stable and predictable sources, we can decrease our spending or we can do some of both. But this gap cannot be closed by making only small, incremental adjustments. It is too large a problem to be solved simply by waiting for energy prices to rebound. Some significant revenue-generating moves should be considered.
First, Alberta could introduce an HST. Every 1 per cent would yield more than $1-billion a year, with $100-million coming from visitors rather than Albertans. A 5-per-cent sales tax, which would still be lower than any other province’s, could halve our annual fiscal gap and be a more reliable source of revenue than oil-and-gas royalties.
Second, the province could bring back the retail carbon tax. If Alberta repatriated the carbon tax on fuel from Ottawa, it could raise over $2-billion a year by 2022, net of a low-income credit program as modelled by British Columbia. This would increase revenues without a new tax on Albertans, who already must pay the federal tax.
Then there’s the possibility of reintroducing health premiums. If Alberta adopted B.C.’s “employer health tax,” that could raise more than $2-billion a year. Reintroducing former premier Jim Prentice’s health levy, meanwhile, could raise more than $500-million. And finally, we could increase personal income taxes. If our income-tax system matched Ontario’s, for example, revenues would be nearly $3-billion higher; each percentage point added to Alberta’s current 10-per-cent first-bracket rate would generate nearly $1.2-billion a year.
On the spending side, there are also several options that can help address the fiscal gap. Those begin with the health care system, where if Alberta’s spending was limited to only 5 per cent more than the average of other large provinces, the provincial government would find a savings of roughly $4.5-billion a year. Given our younger population, this can be achieved. Those savings could also come from a review of physician compensation, where each percentage-point reduction would result in a savings of roughly $50-million. And finally, there are public-sector wages, an area where Alberta pays significantly more than other provinces. Every 1-per-cent decrease across the board for all public-sector employees (including nurses, teachers, professors, etc.) is worth $270-million annually. It should be said, too, that Alberta’s spending does not result in better outcomes than other provinces in many of these spaces.
We can, and should, debate the merits of these ideas and openly discuss the options and trade-offs. It is no longer reasonable to ignore the obvious and hope resource revenues and future economic growth alone will save the day. The politics are understandably difficult, but Alberta needs a more courageous and creative approach, because sticking our collective heads in the sand, as decades of governments of differing ideologies have done for too long, is a disservice to us all.
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