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Getting off ‘crack cocaine’ Alberta forced to consider unthinkable, join rest of Canada with provincial sales tax; digs in against cuts to regain credit rating GARY PARK For Petroleum News
As Alberta comes to grips with a new world that most observers doubt will ever again involve oil at US$100 a barrel, the province is figuring out how to cope with drastically reduced resource revenues that a former government treasury official described as “the crack cocaine of public finances.”
In the process, the unthinkable is happening, with momentum building towards Alberta relinquishing its treasured place as the only one of Canada’s 10 provinces not to have a sales tax.
Albertans still revel in paying only a federal Goods and Services Tax of 5 percent, a level matched only by the three territories - Northwest Territories, Yukon and Nunavut - where the cost of living is beyond the imaginations of those who live in southern Canada.
However, all nine other provinces have combined federal and provincial sales taxes at a minimum 10 percent, peaking at 15 percent for Nova Scotia, Newfoundland and Prince Edward Island.
Sales tax ‘out of the question’ But even the mention of a sales tax is deemed “out of the question” by Alberta Finance Minister Joe Ceci, regardless of his pledge to restore Alberta’s triple-A credit rating.
His only problem is the lack of any weapons when he wages battle with rating agencies.
“Frankly, I’m going to work, I’m going to fight to get (triple-A) back,” he told Calgary business leaders.
But, in case that campaign fails, Ceci said he’d rather have a weaker credit rating than make “draconian” spending cuts to services to obtain a premium assessment.
“We are going to lay out our fiscal plan,” he said. “We’ve got a good track record for the one year we’ve been in government. We’ve told (the rating agencies) what we will do and we’ve delivered on that.”
However, Alberta is stuck with a projected C$10.4 billion deficit for 2016-17, while borrowing to cover operating and capital costs will raise the province’s debt to C$58 billion in 2018, 10 years after it wiped out the debt.
As well, the left-leaning New Democratic Party government does not expect it will return to a surplus until 2024.
Ceci said he will not bend to any pressure from the rating agencies to accelerate the timeline for balancing the books.
Grim reality However much the government digs in its heels, Alberta can’t avoid the grimmest reality of all - its non-renewable resource revenue is pegged at C$1.4 billion for the new budget year, accounting for only 3.3 percent of total revenue, compared with C$11.6 percent or 27 percent of the overall take in 2011-12.
It won’t need any reminding that when the Alberta government of 20 years ago tackled its deficits and debt it embarked on sweeping public-sector job cuts and pulled hundreds of millions of dollars from health, education and social services.
Instead, Ceci said he will “bend the cost curve” rather than flatten it as he shows some compassion for people who are already hurting from a faltering economy.
Earlier this year, a group of 19 academics estimated that a 5 percent Provincial Sales Tax would generate C$5 billion a year.
A panel discussion at the University of Alberta in late April was unable to reach a consensus on whether a sales tax is unavoidable.
Debt servicing But the participants largely agreed that projected borrowing of C$12.5 billion in 2018-19 could push debt servicing costs to C$2 billion a year, making it the fifth largest government expenditure.
Grant Robertson, a former deputy minister for the government’s treasury board, said dependency on resource revenue has to end.
“It is really the crack cocaine of public finances,” he said. “When you get it, you just get stupid.”
Carmen McNary, from the Alberta Chambers of Commerce, chided the government for its tax-and-spend policies, suggesting that “somewhere in the middle is sensible policy.”
He said a 3 percent cut for all government agencies would not be unreasonable, while suggesting the basic taxation Albertans face is “too generous.”
Paige McPherson, of the Alberta Taxpayers Federation, said “corporate welfare” must also be addressed, arguing that “business should have to sink or swim on their own.”
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