Blog | March 02, 2013

Critics claim poor will be most affected

By Darcy Henton, Calgary HeraldEconomists describe taxation as the art of plucking a goose in a way that obtains the largest amount of feathers with the smallest amount of hissing. Well, Alberta is merely talking about the pros and cons of introducing a sales tax and already folks are having a hissy fit.A recent poll has shown more than 70 per cent of Albertans oppose the tax - and they would get their say in a mandatory referendum - but economists insist it is the best way to wean the provincial government off using volatile resource revenues to bankroll programs and services.Since Premier Alison Redford first warned Albertans in a TV address last month that the province faces a $6-billion shortfall in resource revenues in the coming budget, she's been asked almost daily if her Tory government plans to introduce a sales tax.While she has said repeatedly there won't be a PST in Thursday's budget, that hasn't stopped a full blown debate from breaking out across the province about whether Alberta should become the final province to embrace a dreaded consumption tax at the cash register.Even though the government insists it won't happen, opponents remain fearful it may be in the premier's future plans."Never say never," says Public Interest Alberta executive director Bill Moore-Kilgannon. "There seems to be an attempt out there to manufacture consent by the premier and a number of economists that the only cure for Alberta's fiscal woes is a sales tax."Like many critics, Moore-Kilgannon contends a sales tax is a regressive levy that hits low-and middle-income people harder than high-in-come earners, as more of their income is spent on necessities such as food and shelter.The Canadian Federation of Independent Business says new taxes, and particularly a sales tax or a return of health-care premiums, would seriously damage small business.The federation, which represents 109,000 small and medium-sized businesses, said there is also a concern among business owners that new taxes will simply lead to more government spending in a province that already has a $41-billion budget."The small business sector, like a lot of Albertans, simply don't trust the Alberta government," says federation provincial director Richard Truscott. "The government has a real credibility issue here."Canada West Foundation President Dylan Jones, who supports a sales tax, worries it will just flow into higher public sector wages and inflate the cost of services."There is an anxiety that government, rather than using it to displace income tax, will just end up increasing spending," he says.From his perspective, Jones says he will be looking at the upcoming budget to see if the Redford Conservatives are serious about spending management. "I don't think we can have a real good conversation about taxes in Alberta if government isn't credible on the spending point."Even advocates of the consumption tax like former finance minister Ted Morton call the PST a "political suicide tax," but insist it must be done to keep the province out of long-term debt.But Stockwell Day, a finance minister under premier Ralph Klein, has warned bringing in a sales tax without eliminating personal income tax would spell the death of the four-decades-long Tory dynasty."You would go down in history as being a courageous loser," he told the Herald last month.Proponents, however, note the government is running a deficit closing in on $4 billion this fiscal year and is set to introduce its sixth-consecutive deficit budget.As well, the province's rainy day Sustainability Fund is almost dry - it stood at $15 billion in 2009-10 - and another big deficit would lead to debt for the government.Economists contend a well-designed sales tax would raise significant revenues in a province with red-hot retail sales, and cause the least damage to the economy.But will politicians want to take the risk if the outcome is to be revenue neutral and the sales tax is offset with a corresponding decrease in corporate and personal income taxes?University of Calgary economist Ron Kneebone believes they should."Why would the government do this? I think it is in government's interest to raise revenue in the most efficient way possible and in a way that does the least damage to the economy. That to me is their job."While paying a few more cents or dollars on purchased goods may be more of an irritant than a critical cost factor for many Albertans, it will add significant expenses to consumers buying big-ticket items like houses and vehicles.Karen Desjarlais, 30, an Okotoks teacher on maternity leave with an eight-month-old daughter, says paying an extra five per cent PST on a new house she and her husband want to buy in southwest Calgary would be a significant cost - one that could prevent them from living in the area they're seeking near family and friends."Our budget is pretty tight with what we can afford just on one income," she says. "I think it would bring us to a whole different market in a different area of the city."But advocates of a sales tax, like University of Calgary economist Jack Mintz and the Conference Board of Canada, are convinced the bitter pill is necessary and far superior to a move from the province's flat 10 per cent tax to progressive personal income tax or to a hike in corporate income tax."The sales tax is one of the better taxes at the provincial level because it doesn't impact on the migration of people and it doesn't affect capital decisions," says Mintz, Palmer chair in the university's School of Public Policy. "It's also a pretty stable source of revenue…that doesn't go up and down with the economy."While many Albertans take pride in the fact the province has no sales tax, Mintz rejects the contention that it is 'the Alberta Advantage.'"This is not a tax advantage at all," he says. "It's a tax disadvantage."American states with sales taxes grow faster than those that focus solely on income taxes, he says. An eight per cent PST, like Ontario's, would generate more than $8 billion for Alberta and could be used to cut corporate tax and lower personal income tax from 10 per cent to four per cent, he adds.Mintz says he is preparing an analysis to show the impact of sales tax on different income classes."I think it's time for a serious analysis to be done and then let's see how people feel. If they are still against it, well, that's the democratic process."By Darcy Henton, Calgary [email protected]This article was published in the Calgary Herald on March 2, 2013. Read more on the Calgary Herald website.