CALGARY – The Conference Board of Canada has added its voice to the choir calling on Alberta to implement a provincial sales tax to offset its revenue shortfall.
The Alberta government’s bottom line continues to bleed red ink due to falling oil and gas revenue.
Premier Alison Redford has coined the term “bitumen bubble” to refer to the difference between the benchmark prices for oil in North America and the lower price Alberta receives for its land-locked oilsands bitumen.
In the first nine months of the 2012-13 fiscal year, resource revenue in Alberta was $2.4 billion lower than expected and the previously financially flush province is now forecasting a deficit of between $3.5 billion and $4 billion.
The Alberta government is promising what it calls tough but thoughtful decisions to turn the province’s financial fortunes around but Redford has made it clear a provincial sales tax is not on the table.
The Conference Board, an independent, non-for-profit research group that focuses on economic trends, public policy and organizational performance, says a sales tax would provide a quick fix.
“The Government of Alberta estimates that a five per cent sales tax (harmonized with the GST) would generate between $5 billion and $6 billion depending on how the tax and offsets were structured,” writes senior Conference Board economists Alicia Macdonald and Todd Crawford in a commentary in advance of a report being released Tuesday.
“A five per cent sales tax would more than wipe out the current deficit, leave Alberta in a competitive position relative to the other provinces and provide some much needed stability to government revenues.”
They say sales taxes have less of a negative impact on the economy than a tax hike and the burden on consumers can be overcome with tax credits and exemptions for basic requirements.
The Conference Board says Alberta currently finances about 30 per cent of its budget with oil and gas revenues. It says Alberta needs to stop relying so heavily on royalty revenues to fund its general expenditures.
“Scratch the surface of Alberta’s boom and one quickly realizes that the province is grappling with significant challenges,” the authors say. “In the short-term, the considerable discount on heavy Canadian crude oil prices has led to a marked drop in provincial royalty revenues and has the potential to curtail energy-related investment in the province.
“Furthermore, the issue on how wealth generated from extracting non-renewable resources will be shared with future generations remains unsettled.”
The report suggests that North America now finds itself “awash in oil” as a result of new and vast oil reserves opened up by hydraulic fracturing and directional drilling techniques. The extra oil supply and insufficient pipeline capacity to get the new production to the Gulf Coast refineries is putting further downward pressure on prices.
Crawford and Macdonald also recommend directing more oil royalties to bolster the Alberta Heritage Fund.