Let’s talk about revenue

A few days before her government dropped the 2024 budget, Premier Danielle Smith took to airwaves to talk directly with Albertans.

She wanted to tell us about the importance of getting Alberta finances off the reliance on resource revenue and her plans to do that. This is a laudable goal, to be sure, but one that has been talked about by virtually every other premier in decades.

Smith’s plan is to grow the Alberta Heritage Savings Trust fund in order to ensure that income earned from the fund would be able to replace resource revenue, which will likely erode as the globe transitions away from fossil fuels. 

Again, this is a laudable and prudent plan. 

While some argue it is intergenerationally unfair to leave our kids with debt, I argue that it is also intergenerationally unfair to sell off our natural resources without leaving them something to show for it.

I am not, however, convinced by Smith’s plan on how to grow the Heritage Fund. She says if we keep spending increases below the levels of inflation plus population growth, then we can grow the fund as high as $400 billion by 2050.

Overlooking the fact that keeping spending below population growth and inflation is a de facto cut in real funding, Smith’s grand plan did not get off to a great start. Budget 2024 puts an additional $2 billion into the Heritage Fund in 2024/25, but it gets that $2 billion from the Alberta Fund. The Alberta Fund is savings from prior year surpluses, designed to help pay down debt. Ironically, the government is actually borrowing an additional $2 billion next year and, coincidentally, $2 billion is also the amount that oil revenue is set to decline next year.

This is sort of like borrowing $20 to put into your right pocket and then passing it over to your left pocket to say, ta-da, look at all this money in my left pocket!

The truth is that without either making substantial cuts or significant changes to taxes, it will be very difficult to get off the resource roller coaster or to make significant investments in the Heritage Fund.

Budget 2024 projects a relatively thin $400 million surplus. The budget only balances by collecting $17.3 billion in resource revenue. If we want to cut that out of the budget and make large deposits in the Heritage Fund, we need to have a big oil boom, dramatically cut spending or increase taxes.

Substantial cuts would be a real problem. Our education system is already the lowest funded in all of Canada. And health care is a huge issue right now. So why not look at revenue?

“Some say the answer is higher income taxes or a sales tax. I reject this,” the premier said. “We only need to look at some of our fellow provinces and many US states to know that increasing these kinds of taxes to balance a budget is a recipe for economic decline.” 

“That will not be the approach of our government.”

Here’s the thing: there is so much room to move on taxation policy. 

The budget documents show that Alberta would collect $19 billion in additional revenue — and still be tied for the lowest taxed jurisdiction in Canada — if it followed B.C.’s tax scheme. It has more than $8 billion in tax room without even touching a sales tax. 

The biggest tax savings are at the highest income levels. Families earning over $300,000 in annual income pay $12,000 less in tax in Alberta compared to B.C. Let’s not forget the corporate tax rate either. That rate is about two-thirds the rate of most other provinces.

I reject the notion that adjusting tax on corporate profits and on the wealthiest Albertans even just a little bit would lead to economic ruin. It is ridiculous to leave any talk of taxation off the table.

When you look at our fiscal picture, which has long needed adjusting, it is clear that the real intergenerational unfairness comes from keeping our tax system irresponsibly low while we suck the resources dry and leave nothing for the future.

It is also intergenerational unfairness to not fund education appropriately. That funding should not rely on oil revenue, it should come from stable sources.

The revenue conversation needs to be squarely on the table. ❚

I welcome your comments. Contact me at jonathan.teghtmeyer@ata.ab.ca.