Alberta's revenue conversation still looms large amid premier's 'no tax hikes' pledge

Alberta Premier Danielle Smith this week promised that her United Conservative Party would not increase personal or business taxes if re-elected, and the Taxpayer Protection Act would be expanded so future governments would need a referendum to do so.

The plan received a glowing review from the Canadian Taxpayers Federation. It called the proposal a "beacon for people who value lower taxes and an entrepreneurial spirit" and described it as one of the strongest laws protecting taxpayers on the continent.

But the move also raises questions about the future of another recent pledge made by a UCP politician — the creation of a panel that would explore how the province could lessen its reliance on volatile oil and gas revenues. 

Promised by Finance Minister Travis Toews a little more than a month ago, some economists hoped it would be an opportunity to explore other revenue streams — or even taxes — that ensured government funding wouldn't dry up when fossil fuel prices go down. 

The future of that panel and its work seems unclear in light of Smith's latest pledge. Toews, a former UCP leadership rival, is not seeking re-election. 

On Wednesday, the premier was asked by a reporter whether the new announcement "jumped the gun" on Toews's panel. Smith didn't answer the question directly but said reducing tax rates can sometimes increase revenues. 

"I think if you asked the minister what he thought of reducing the corporate tax rate from 12 per cent down to eight per cent, I think he'd probably tell you that it generated more revenue," Smith said. "So the fact that we were able to deliver a substantial tax cut sent a message to the business community that this was the place to invest."

Yet, despite this latest pre-election pledge, discussions about how the government can ensure stable revenues — to pay for services like health care or build infrastructure like highways — are unlikely to disappear, even with an anticipated $2.4-billion budget surplus this year.

In a province that sees its finances bounce from significant deficits to huge surpluses depending on the state of the oil industry, such a pledge offered by the UCP would pose challenges, say two Calgary economists.

Back in the late 1980s, amid a dramatic fall in energy royalties, the Alberta government ran into a large deficit situation and was forced to accumulate debt, hoping for energy prices to come back, noted economist Ron Kneebone with the University of Calgary's School of Public Policy.

When oil prices didn't rebound, then-premier Ralph Klein's Progressive Conservative government was forced to dramatically cut spending in the 1990s, especially after an option to introduce a harmonized sales tax taken off the table. That would be a similar potential outcome under this proposal if it prevents the government from raising taxes, Kneebone said.

"Basically, I can't raise revenue. I'm going to have to either accept a big accumulation of debt again, and hope that energy prices come back before that debt becomes too large, or I'm going to have to dramatically cut spending," said Kneebone, who has discussed policy with former Alberta government representatives, including former treasurer Jim Dinning.

"So, that's the corner we're in. That's the choice we're making."

Former Alberta premier Jason Kenney's first budget slashed the corporate tax rate for all businesses, from 12 to eight per cent. In 2019, the province also entered a period in which it paused indexation. Indexation of tax brackets is a response to inflation, increasing the amount of money taxpayers are allowed to exempt.