“Alberta subsidizes an artificially low tax environment and high per capita social spending with oil royalty revenues. But that policy is doomed,” political columnist Jen Gerson wrote in an April 27 analysis for the National Post
. “It is a very obvious problem — a gap between revenue and spending — with a very straightforward solution. It’s time to suck it up and adopt a sales tax.”
Gerson pointed at recent government statements that indicate the urgency of the situation. Finance Minister Joe Ceci previously said that a balanced provincial budget is not feasible until at least 2024.
“It’s a startling admission, and one that has already prompted two credit downgrades, one from DBRS the day after the budget and another this week from Moody’s, citing the province’s unrestrained debt growth and its long return back to balanced budgets,” she said.
The analyst admitted that the suggestion isn’t something that the long-struggling consumers in the hard-hit market would want to hear, but she added that Alberta essentially has no choice if it wants to remain afloat.
“Taxes have to go up to offset the decline in resource royalties. Although despised, sales taxes do the least damage to the economy. A five per cent sales tax — which would still be lower than any other provincial sales tax in the country — would halve the deficit overnight,” Gerson explained.
“Combined with moderate spending cuts — even restrained spending growth — Alberta could wean itself from resource royalties within a few years,” she argued further. “When and if the price of oil does rebound, those revenues could be redirected into savings, investment, debt repayment or infrastructure spending. But the province would never again be so wholly dependent on such a volatile commodity.”
“The fiscal solution is simple. What’s lacking is the political will to make an unpopular decision,” Gerson concluded.
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Much of Alberta’s revenue traditionally came from the once-thriving energy sector, but in the wake of the global oil shock, the time has come for the provincial government to consider a most unpopular source of funding, according to an observer.