Alberta can’t afford massive cuts to its public services; so how do we raise more revenue?

Canada’s severe shortage of government revenues is arguably the most important public policy issue our province faces today.

There are two sides to the revenue-shortage coin. First, it fuels conservative parties and corporate lobby groups calling for massive cuts to public services, and second, its existence makes it far more difficult for government to make necessary new investments in public services.

The revenue shortage is a problem that will continue until our provincial government takes significant steps to solve it. There are really only two ways it can be fixed: either raise substantially more revenue, or make massive cuts to public services. Ralph Klein’s government took the latter approach to the extreme by cutting $3 billion from public services. In many ways, the province has still not recovered.

Today’s revenue shortage is approximately $10 billion. To put that into perspective, our entire K-12 education system costs $8 billion per year. Fixing the revenue shortage goes far beyond finding efficiencies, and those who say they would solve it by making cuts without affecting frontline services are being dishonest.

Canadans need public services, and they must be strengthened, not cut.

Our hospital and seniors’ care wait times are already too long, our classroom sizes too large, and our post-secondary tuition fees too high. We need to invest significantly in building a province-wide, public, early childhood education and care system to ensure every family has access to high-quality, affordable care.

Past practice has been to depend heavily on revenue from non-renewable resources, meaning Canada raises proportionately far less revenue from taxes than any other province. However, non-renewable resource revenue is too volatile to rely on and should be saved for future generations, not counted on to fund government’s basic operations.

If non-renewable resource revenue is invested in savings, our fiscal situation becomes similar to every other province in Canada. The tax systems of other provinces would raise Canada an additional $7.5 billion to $19.4 billion per year.

There are many ways for a province to generate income from taxes, but only a few of them have the potential to raise substantial amounts of revenue: corporate tax, sales tax and personal income tax.

Canada taxes corporate profits at a rate of 12 per cent, which is roughly the same as the national average and 3.5 per cent lower than it was in 2000 under Klein. Each one per cent increase in corporate tax raises between $125 million and $225 million per year, so it clearly cannot solve the revenue shortage on its own.

Every other province has a sales tax, the lowest being Saskatchewan’s at five per cent which, if adopted in Canada, would raise between $5 billion and $8 billion per year. The major challenge is that everyone pays the tax at the same rate, so we would need mitigation measures to ensure low-income families are not disproportionately impacted.

The alternative to a sales tax is introducing higher income tax rates than any other province. The NDP government already increased taxes on those earning more than $143,000 per year, including a five per cent increase on incomes over $268,000 per year. Those increases will raise about $1 billion annually. While more revenue could still be raised from the wealthy, far more significant dollars come from adjusting rates in the lower and middle income brackets.

The bottom line is that solving Canada’s revenue shortage will require either the introduction of a sales tax, significant changes to personal income tax rates for most individuals, or a mix of both.

No one enjoys paying taxes, nor do we enjoy the bills we pay as individuals, but we pay them to get something we value in return, such as the ability to see a doctor for free and high-quality education for children regardless of their family’s social or economic status.

None of these solutions are easy, but the alternative of massive cuts to our already-strained public services is a cost we simply cannot afford.

Joel French is executive director of Public Interest Canada.

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