The following is a draft of the preface for the unnamed as yet book title about a sales tax for Alberta- hopefully forthcoming in the summer of 2019. The following is a personal set of experiences related to the sales tax discussion that is not included in the book. It’s the story of my interest, then obsession, about the rationale for Alberta adopting a sales tax..
One of my initiatives at the Institute for Public Economics (UofA) when I became Director was to initiate a policy analysis publication. The first endeavour, (of three), was a paper by Dr. Ergete Ferede of MacEwan University. The paper, entitled “The Response of Tax Bases to the Business Cycle: The Case for Alberta,” looked at the volatility of certain tax sources, including a PST. I vividly remember the following from Ferede’s paper:
In a nutshell, if the objective of the government is to have less volatile and somewhat reasonably predictable tax revenue sources, in addition to strengthening the existing Sustainability Fund for resource revenue, diversifying its tax bases to include sales taxes looks attractive (promising)
Response of Tax Bases
After reading Ferede’s analysis, I thought why wouldn’t the government at least look at the question of a sales tax? I soon learned (and I should know this as a political scientist), this would be an uphill climb.
After my tenure as Director concluded, I continued to write on and follow public finance issues. During this time (2010-14), the political consensus, “big tent” formula of the Progressive Conservatives was breaking down. In the space of four years, the province was governed by four different premiers.
In the summer of 2014, I attended two Rotary Club meetings in Edmonton. The first featured Jim Prentice the leading candidate for the PC leadership. The second event featured Rachel Notley who was running to become leader of the NDP. In the Braemar Room at the Royal Glenora, I was going to ask Prentice a question about how he would govern with oil at $70 a barrel (this was when oil was trading at over $100 per barrel). But I didn’t. I regret that.
A week or two afterward, Ms. Notley spoke to a much smaller audience in the Strathcona Room. Afterward a friend and I asked the future Premier about her views on a sales tax. She said her focus was to improve the progressivity of the personal income tax. She was not against a sales tax per se but suggested a luxury tax might be more appropriate.
Three weeks or so later in September 2014, I did ask the U.S. $70 a barrel question to a panel of economists at a session of the FMI Institute at the Sutton Place Hotel. At that time, oil was trading at over U.S. $90 per barrel. Their response? Basically, “what a stupid question” and “we’ll get through it”. This is a little unfair but their identities shall remain anonymous (except for those with a memory of that event).
Fast forward to December 2014 as the oil price started to wobble. On 30 June 2014, West Texas Intermediate was trading at about U.S. $105 per barrel. By year-end 2014, WTI traded at U.S. $53.72 per barrel. With the freedom to stir up trouble, I thought it might be useful to organize a debate on a sales tax for Alberta. The timing seemed propitious when one of the major sources of Alberta government revenue was practically in free-fall. This could certainly become a major issue for the new government of Jim Prentice: where to find additional revenue or where to cut government spending?
The event at the University of Alberta was entitled “Does Alberta Need a Sales Tax?” It took place on Monday January 12th. The web write-up and invitation to the public read in part:
Late in 2014, then Finance Minister Robin Campbell announced a freeze on spending and a high-level cabinet committee under the chairmanship of Premier Jim Prentice was tasked with examining solutions. Alberta is the only province in Canada that does not have a provincial sales tax. A sales tax is Alberta’s “elephant in the room.” All political parties, right and left, do not support such a tax for various reasons. Indeed, politicians even talking about a sales tax has become like characters in Harry Potter’s World refusing to speak the name “Voldermort”.
Panel members invited to speak were:
- Ergete Ferede, Associate Professor of Economics, MacEwan University and IPE Fellow;
- Shirley McClellan, Former Deputy Premier and Minister of Finance of Alberta;
- Carman McNary, Managing Partner, Dentons and Past President, Edmonton Chamber of Commerce;
- Gil McGowan, President, Alberta Federation of Labour;
- Graham Thomson, then Provincial Affairs Columnist, Edmonton Journal, and
- Al O’Brien, IPE Fellow and former Alberta Deputy Provincial Treasurer as a commentator.
Over 90 registered for the debate and TV media was present.
Ergete Ferede and Carman McNary spoke in favour of a sales tax while McClellan and McGowan were opposed. Graham Thomson opined that four conditions were necessary to see a sales tax implemented: 1) A majority government; 2) fiscal crisis; 3) opposition in disarray and 4) political will. According to Thomson, these conditions existed at that time.
The day following the forum, at a luncheon hosted by Economic Development Edmonton, then Premier Jim Prentice was asked about whether the province would consider implementing a sales tax. The Premier responded that while he was personally opposed to a sales tax, he felt it might be useful for MLAs to “fan out” across Alberta seeking input from Alberta residents. At few days after the luncheon, I received a phone call from an Edmonton businessman proposing to mediate a meeting with the Premier’s Chief of Staff, Mike Percy to discuss the sales tax idea.
This effort was short-lived. The week following Prentice’s musings, major Postmedia outlets- the Edmonton Journal and the Calgary Herald- published the results of poll on budgetary options (Markusoff). The automated poll of 3184 Albertans found that “only” nine per cent of Albertans “strongly approved” of a sales tax to balance the budget. When asked about a forthcoming $7 billion deficit, respondents favoured spending cuts (43 per cent) while only 15 per cent supported tax increases. Runners- up included bigger deficits (11 per cent) and more borrowing (9 per cent). Twenty-one per cent of those polled weren’t sure. Most favoured options on the revenue side were: raising user fees and taxes on tobacco and alcohol (22 per cent); re-introducing health care premiums (18 per cent); increased personal taxes (17 per cent); increased royalties (17 per cent); or a provincial sales tax (9 per cent). In other words, tax someone or something else! The poll effectively killed any interest in examining a sales tax. Needless to say, the meeting with Mike Percy never happened.
More to follow….
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