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Alberta’s revenue conversation still looms large amid Danielle Smith’s ‘no tax hikes’ pledge

Alberta UCP leader Danielle Smith this week promised that her party would not increase personal or business taxes if re-elected, and the Taxpayer Protection Act would be expanded so future governments would need a referendum to do so.

The plan received a glowing review from the Canadian Taxpayers Federation. It called the proposal a “beacon for people who value lower taxes and an entrepreneurial spirit” and described it as one of the strongest laws protecting taxpayers on the continent.

But the move also raises questions about the future of another recent pledge made by a UCP politician — the creation of a panel that would explore how the province could lessen its reliance on volatile oil and gas revenues. 

Promised by Finance Minister Travis Toews a little more than a month ago, some economists hoped it would be an opportunity to explore other revenue streams — or even taxes — that ensured government funding wouldn’t dry up when fossil fuel prices go down. 

The future of that panel and its work seems unclear in light of Smith’s latest pledge. Toews, a former UCP leadership rival, is not seeking re-election. 

On Wednesday, the premier was asked by a reporter whether the new announcement “jumped the gun” on Toews’s panel. Smith didn’t answer the question directly but said reducing tax rates can sometimes increase revenues. 

“I think if you asked the minister what he thought of reducing the corporate tax rate from 12 per cent down to eight per cent, I think he’d probably tell you that it generated more revenue,” Smith said. “So the fact that we were able to deliver a substantial tax cut sent a message to the business community that this was the place to invest.”

Yet, despite this latest pre-election pledge, discussions about how the government can ensure stable revenues — to pay for services like health care or build infrastructure like highways — are unlikely to disappear, even with an anticipated $2.4-billion budget surplus this year.

A man speaks into a microphone.
Alberta Finance Minister Travis Toews told a Calgary business audience in early March that he wanted a new panel to examine ways to fix Alberta’s volatile revenue structure. (Juris Graney/CBC)

Alberta finances depend on resource revenue

In a province that sees its finances bounce from significant deficits to huge surpluses depending on the state of the oil industry, such a pledge offered by the UCP would pose challenges, say two Calgary economists.

Back in the late 1980s, amid a dramatic fall in energy royalties, the Alberta government ran into a large deficit situation and was forced to accumulate debt, hoping for energy prices to come back, noted economist Ron Kneebone with the University of Calgary’s School of Public Policy.

When oil prices didn’t rebound, then-premier Ralph Klein’s Progressive Conservative government was forced to dramatically cut spending in the 1990s, especially after an option to introduce a harmonized sales tax taken off the table. That would be a similar potential outcome under this proposal if it prevents the government from raising taxes, Kneebone said.

“Basically, I can’t raise revenue. I’m going to have to either accept a big accumulation of debt again, and hope that energy prices come back before that debt becomes too large, or I’m going to have to dramatically cut spending,” said Kneebone, who has discussed policy with former Alberta government representatives, including former treasurer Jim Dinning.

“So, that’s the corner we’re in. That’s the choice we’re making.”

A man stands in front of a sign.
Ron Kneebone, a professor at the University of Calgary’s School of Public Policy, says when oil revenues decline, governments will be faced with questions as to whether they will raise taxes, accumulate debt or cut spending. (Anis Heydari/CBC)

Under former Alberta premier Jason Kenney, the corporate tax rate was slashed for all businesses, from 12 to eight per cent. In 2019, the province also entered a period in which it paused indexation. Indexation of tax brackets is a response to inflation, increasing the amount of money taxpayers are allowed to exempt. 

“That is, if the income tax thresholds are not indexed to inflation, an increase in income will result in higher taxes paid by the taxpayer even though their purchasing power has not changed,” the University of Calgary’s School of Public Policy explained in a July 2022 report.

That period saw Albertans pay nearly $647 million more in additional income taxes compared with a situation where taxes remained indexed, according to the report.

Budget 2023 resumed the indexation.

“So once you’re put into the situation that you need more revenues, there’s lots of ways to get around it, which actually are bad tax policy manoeuvres,” said University of Calgary economist Lindsay Tedds.

Opposition NDP Leader Rachel Notley, meanwhile, told reporters during a media availability that an elected NDP would not raise personal taxes in Alberta over the next four years, but she didn’t commit to necessarily requiring a referendum to make changes.

“It’s sometimes necessary. I don’t think there’s an overarching rule one way or the other about when it’s appropriate,” she said.

Various groups have, in recent months, offered their perspectives on how to re-imagine Alberta’s revenue model, including the Business Council of Alberta.

Earlier this month, the group released a report that called for solutions that included re-envisioning Alberta’s strategy, while ensuring Alberta businesses and households faced the lowest tax burden in the country.

Both the UCP and the NDP have spent the last few days, in part, sparring over which party raised taxes more times on Albertans.

Taxes haven’t yet registered as a major issue on the radar of pollsters such as Janet Brown Opinion Research. But it’s certain that conversations around lessening the province’s reliance on oil and gas revenue will continue long after this provincial election is decided, and will take on more urgency the next time the price of oil dips.

The writ for the upcoming provincial election is scheduled to be issued May 1. Polling day is May 29.

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