You Be The Finance Minister

If Doug Horner can't get Alberta's finances under control, he can always look forward to a long career as a Ricky Gervais impersonator.

If Doug Horner can’t get Alberta’s finances under control, he can always look forward to a long career as a Ricky Gervais impersonator.

Alberta is facing a bit of a budget crisis, with a deficit which, on a per capita basis, could be as big as Ontario’s. This has forced Alison Redford into making some tough choices…or, in the more likely event, building up debt.

To help with these decisions, Redford has launched a Your Choice website, letting average Albertans consider the same trade-offs government is facing. It’s actually a really neat form of citizen engagement, and is the ultimate “let’s see you do better” response to critics.

Since I expect to be one of the many critics on budget day, I figured I’d give the tool a shot, and spent 20 minutes painstakingly deciding where to make cuts – is $60 million on Carbon Capture a wise investment, or are a few more potholes a price worth paying to take $10 million out of the provincial highway fund? By the time I’d cut my way through 18 departments, I still found myself in debt. Maybe I could afford to go a bit easier on the Redford government.

Then I got to the revenue side of the ledger. A 1% increase in the corporate tax rate would bring in half a billion. A tax on anyone making over $250,000 a year would bring in another half a billion. A measly 2% income tax would nearly erase the entire deficit.

Alberta finds itself in a situation where they could fix their fiscal framework and still have, far and away, the lowest taxes in the entire country. I don’t expect Redford to go down that route, but after looking at the numbers being released by her own government, that appears to be the easiest way out of this hole.

Posted on by CalgaryGrit in Alberta Politics, Budgets

About CalgaryGrit

A former Calgary Liberal, now living in Toronto. My writings on politics can be found at www.calgarygrit.ca and online at the National Post.

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19 Responses to You Be The Finance Minister

  1. Dan F

    How dare you ever suggest that any government ever raise taxes. You commie!!

  2. Teddy Boragina

    My turn!

    First thing: seriously unserball the price of oil. I set it at 61.

    First is revenue. Skip the cuts for now.

    I decided to introduce a Sales Tax of 5%
    and…
    oh.
    I’m done.

    Well that was boring. And unintended. Lets go back and set oil at $50 then.

    The deficit now thus stands at 2.6 billion.

    I increased fuel taxes by 4 cents.

    Deficit at 2.1B

    Now on to the cuts

    Co-Pay for home care
    Cut supports for the Legislature, Cabinet, and froze public sector pay.
    Cut funding for sports, and Tourism by 10%
    Cut public security spending by 1%
    Cut intergovernmental by 10%
    Cut class size limits
    Reduce education admin costs
    Cut education grants by 1%

    down to 1.4
    That’s as far as I’m willing to cut. Back to the price of oil estimate.

    $56 would balance this budget.

    $69 would balance the budget with only a 2% sales tax.

  3. Teddy Boragina

    I went back and with a 5% sales tax alone, and oil at $82, the budget is balance.

    Alberta would still have the lowest sales taxes in Canada.

  4. Teddy Boragina

    Oops. Must have done something wrong. a 5% sales tax increase, on it’s own, will balance the budget at $61

    A 2% sales tax balances the budget at $74

    0% sales tax balances the budget at $82

    Each point of sales tax means oil can be $4 less and you still balance the budget.

  5. Paul O

    Good thing there aren’t any actual economic penalties to be found by increasing income taxes or introducing a sales tax (at 5%! a HUGE increase in tax burden on ordinary Albertans).

    • hazzard

      Are there “ordinary Albertans”? :o)

    • Teddy Boragina

      Frankly, considering that a sales tax solves the entire problem, this entire website is probably just a political attempt at introducing the idea of a 2% tax to Albertans.

    • CalgaryGrit

      Given Alberta would still have the lowest tax rates in the country for these moves, I can’t imagine there would be a huge economic hit to, say, bringing in a 2% sales tax.

      There’s a reason economists aren’t as down on sales taxes as other taxes.

      • Teddy Boragina

        It’d be the political cost more than economic. Once you HAVE a 2% sales tax, you can change it to 3%, or 4%, or 5% down the road. You could even cut it to 1% if you wanted to.

        I really do think that’s the whole point of this entire exercise. The government is trying to get Albertans to tell them to bring in a Sales Tax.

        • Paul O

          Sigh.

          Let’s go back to economics 101 for a quick visit, shall we?

          Presuming a new 2% sales tax applies across the board economists will expect an immediate contraction in the economy of just under 2%. That’s a huge hit to both businesses and consumers, and a large number of people will be put out of work.

          Some spending presents lesser elasticity, so the contraction won’t likely be as great as the tax increase, but that’s a lot of new expenses for businesses. And for those businesses who continue to spend at the same rate as they did prior to the new tax, the effect is to simply transfer what was being paid as income taxes to now be paid as sales taxes.

          • Teddy Boragina

            NS recently raised it’s sales tax and I challenge you to find the 2% contraction there.

            If economics worked as in textbooks, both unfettered capitalism and unrestricted communism would work fine and dandy.

          • CalgaryGrit

            So what’s the solution then? Find a few billion in cuts (which would almost have to come from Health Care given the numbers we’re talking about) or just run up debt? I’m assuming an increase in oil royalties is off the table.

            I’m not dead-set against deficit spending during a downturn, but it’s looking more and more like Alberta’s structural bottom line is out of balance.

    • Michael

      A 5 % sales tax when you had none before would indeed be hard for a lot of people to swallow. It would be unpopular, and lead to loss of the next election, even if it ever did pass the required referendum.

      But objectively it may still be the right thing to do.

      Would it reduce spending? A bit, I am sure. But the nice thing is it would bring in quite a tidy sum in revenue from tourists.

      As for the economic penalties, anything the government does will have economic consequences.

      Cut salaries to public service, teachers, doctors, professors etc ? All those people will also spend less in their communities with knock-on effects to the private sector.
      Plus all those people will pay less tax.

      Cut grants to Post Secondary Education? Tuition will go up, fewer students will get in, unemployment will rise.

      Given that Alberta is the least taxed jurisdiction in the country, the revenue side has to be considered as well as the cost cutting side.

  6. MyOwnView

    Why a sales tax over income tax as the preferred method for increasing revenue, especially for those making over $250K?

    Sure a sales tax dings everyone, but impacts those with lower incomes to a greater extent. I’d rather see graduated income tax increases for both business an personal than sales tax.

    • CalgaryGrit

      That’s another option on the table, and it seems to be more palatable politically – the only difference is it wouldn’t bring in nearly as much revenue.

  7. Ed

    This was an interesting exercise, and its great the Albertan government put this thing online.

    I tried to get into the mindset of an Alertan conservative politician, and really tried to stay clear of sacred cows. Its intersting approaching this as an American. Alberta is supposed to be the most right wing place in Canada, but the provincial government in Alberta gives far more support to low income people and environmental inititatives tna eevn most Democrats in the U.S. would be comfortable with. Then there is the whole health care thing.

    Anyway, I tried to put the budget as close to balance as possible without doing any of the following:

    1. Slaughtering sacred cows. I didn’t touch agriculture funding at all, and avoided tax increases, particularly “new” taxes.

    2. Fiddling with the estimate of the oil price. I just used the consensus estimate.

    3. Taking things out too much on the poor.

    4. Avoiding silly-clever moves that will probably cost large sums of money in the long term. In particular, I avoided cuts in programs which probably maintain or increase government efficiency.

    I wound up with a deficit of Cdn $400K, with a ratio of 3:2 of revenue increases to spendng cuts. In the U.S., its nearly impossible now to get through any revenue increases. There was a 2% sales tax and a 1$ income tax increase, though health care premiums were not cut back. In terms of spending, senior citizens were hit hardest, in the U.S. senior citizens get a disprortionate amount of state and local spending but things may be different in Canada. There were more cuts to the health care budget than I would have liked. Alberta basically would stop trying to proomote itself as a tourist destination. There were lots of small shallow cuts elsewhere.

    THe takeaway is that even approaching this as a conservative politician, there will have to be some sort of tax increase. And health care is such a big part of the budget that I don’t think you can avoid cutting it, though if agricultural supports wre taken on that would helo.

  8. Paul O

    In 2009, Nova Scotia’s GDP outperformed the Rest of Canada (RoC) by about 4%; in 2010, it underperformed RoC by about 2%.

    In 2008 and 2009, NS Labour Productivity gains significantly outperformed RoC; in 2010 NS significantly underperformed RoC.

    It seems clear that much of the contraction in the NS economy resulting from the increased sales tax was priced in during the three month period prior to its introduction, just as economists would predict. The effect of the sales tax increase may also have been moderated by the larger portion of the NS economy taken by public sector administration (>10%): the government was paying increased taxes to itself.

  9. Michael

    I was surprised how easy it was to balance the budget by very modest tax increases , without cuts to anything important like healthcare and education. And I was assuming a 66 dollar oil price, which is on the cautious side.

    I ended up with a largish surplus that would be much bigger if oil prices stay at over 70 dollars a barrel

    Even very conservative think tanks and research groups are now mentioning the unspeakable – a sales tax ! See recent article by Jack Mintz on this subject – and the School of Public Policy at U of C are as capitalist and anti-government as you could imagine.

    I would prefer income tax increases, especially a higher tax rate for richer Albertans (maybe 12 % on taxable incomes over 100,000), but did include a 2 % sales tax in my budget.

    I don’t particularly like sales taxes, but if you must have them (and we do through the GST), you may as well make it worthwhile, and at least the rich do pay this way, because they do spend money. Most European countries have VAT rates substantially higher than any of our provinces.

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