The evolution of Alberta’s revenues may mean new taxes

Posted by: Adam Legge on January 2, 2013

I thought last month I had covered off my piece about needing a plan B for provincial revenues. Guess I was wrong. That was merely setting the stage it would seem.

Based on some of the data coming forward about where provincial finances will rest for the next year or so, it seems we are in a bit of a bind. Our natural resource revenues aren’t quite at the level one would hope for, and definitely not at the level that will sustain the government spending that Albertans have become accustomed to. And looking into my crystal ball (yes, they provide those as graduation presents to all economists), there is not much on the horizon that would suggest that the price fundamentals of our key commodities will change for the better any time soon. So the bind looks set to continue.

Much like when many of life’s original life forms said to each other “hey, it looks kind of awesome out of the water over there; want to give it a go?” we need to ask similar kinds of questions.

One thing that is cool about Alberta is its low tax regime. We love it. We brag about it. We promote it. It’s our calling card. But much like the origins of our many species on this planet, our fiscal system must evolve as well. The Alberta Advantage just isn’t working in a world of abundant natural gas, or big price differentials between West Texas Intermediate and Alberta bitumen. Well, at least the original Alberta Advantage isn’t functioning as well, so it is time, as I mentioned last month, for a new Alberta Advantage; plan B.

Plan B represents an evolution of the Alberta Advantage to something more adaptive to the current economic realities and reflects the kind of fiscal environment that we want as Albertans.

We need two things for this to happen. First, we need to be comfortable that our provincial government has done everything that it can to extract maximum value out of every dollar spent. That will create the comfort among Albertans to hold a meaningful discussion about a new fiscal framework that will create Plan B — or the new Alberta Advantage.

Second, we need Albertans to take a deep breath and embrace the need to have a discussion about the fiscal situation in Alberta. We need to look at our fiscal picture — revenue options, and spending options. And we need to not immediately throw options out as “un-Albertan” or simply verboten. Imagine a scenario where we can’t get pipelines built and natural gas prices remain low. We would be facing multibillion dollar deficits going forward. That is simply not an option. The option rests in a meaningful conversation as to what we should do, and what we can accept, to preserve the quality of life that we have come to know and appreciate.

Many Albertans and organizations have done a lot of thinking and work on this subject, including Jack Mintz of the University of Calgary’s School of Public Policy; the Canada West Foundation and the Calgary Chamber. Many have put forward some innovative and interesting ideas that we need to consider: taxation changes; spending parameters; different revenue generation approaches; and, ways to match revenues to expenditures. They should all be on the table.

The Alberta Advantage in its current form will not survive — simply because the conditions for it to be successful may be a thing of the past. It must evolve. The great thing is that we have already had a lot of work and thought put into solutions and evolutionary options. All we need is the openness and opportunity to discuss them.

So, for next year, from one Albertan asking all my other fellow Albertans, let us not cover our ears and say “la, la, la, I can’t hear you,” when it comes to the topic of government finances, but let us sit down in our boardrooms, kitchens and coffee shops and talk about what could be. About what we might be willing to accept to keep our quality of life. About what the new fiscal species, our new Alberta Advantage, looks like in 2013 and beyond. It might be a change to the tax structure. It might be debt for infrastructure. It might be a penny tax. It might be user fees. But in exchange it might mean no property tax. Or a lower income tax. Who knows?

We live in the best province in the best country in the world. But to preserve that we need to think differently. We need our fiscal species to evolve and sufficiently thrive to keep Alberta as a leading home and destination in this great nation.