July 4, 2013 – A revenue-neutral tax swap would improve Alberta’s fiscal prospects, according to a report released today by the C.D. Howe Institute. In “The 8 Percent Solution: A Sensible Tax Compromise for Albertans,” authors Colin Busby and Alexandre Laurin propose a change that would better equip Alberta’s government to meet its longer-term fiscal challenges, which include plunging resource revenues and growing budget deficits.
“Beyond the financial damage caused by the flooding, Alberta will need to address its record of rapidly growing expenses and volatile revenue,” said Colin Busby. “The surprisingly large deficit of $3.1 billion for fiscal year 2012/13, revealed in the Government of Alberta’s report released last week, highlights the province’s ongoing fiscal troubles. A tax swap would better position the province for future economic growth and related tax revenues.”
Financial trouble has led to calls for a broad-based sales tax in Alberta, and strong opposition to that proposal, note the authors. Most proponents favour a revenue-neutral tax swap that would see a sales tax introduced alongside a decrease in income taxes. Such a switch, they say, would lead to greater saving, investment, and result in less volatile government revenues. Those opposed are concerned about shifting costs onto lower- and middle-income Albertans, and the loss of Alberta’s identity as the only province without a sales tax.
The authors propose a solution that would break the deadlock between the two sides of the debate. They recommend Alberta introduce an 8 percent HST – by adding 3 percentage points to the existing federal GST of 5 percent – and lower its personal income tax rate to 8 percent, which would be revenue neutral.
“By introducing a generous HST credit for low- and middle-income earners, the proposal would also limit the distributional problems associated with sales taxes like the HST, while creating a more competitive economy,” concluded Alex Laurin.
Click here for the full report.
For more information contact: Colin Busby, Senior Policy Analyst, or Alexandre Laurin, Associate Director of Research, C.D. Howe Institute, 416-865-1904; email: cdhowe@cdhowe.org.