Alberta must be cautious about raising taxes

A concerted effort is now underway to ensure that Albertans have a "conversation" about current levels of taxation.

Fair enough, but it seems that conversation is code for convincing Albertans that we need higher levels of taxation.

What this conversation will require, therefore, is a voice willing to make the case against higher taxes and to even go a step further and make the case for a shift away from the most damaging forms of taxation.

There are positive things that can be said for the status quo, and it is curious that the architects of the status quo are so hesitant to defend it.

The governing Tories don't shy away from boasting about Alberta's enviable economic position or their role in creating it, but now those same Tories are the ones who are suggesting that the status quo is no longer sustainable.

After tabling his budget last week, Finance Minister Ron Liepert spoke of the need to "move toward a more sustainable revenue base."

Of course, this will all take place after the upcoming provincial election. Liepert says this "thorough conversation" about our fiscal framework cannot be done "in the space of a few weeks prior to an election."

Yes, heaven forbid we should have a serious conversation about an important issue in the context of a provincial election campaign. After all, what would an election be without platitudes and demagogy?

The Alberta Liberals, to their credit, are not taking the coward's way out. They, like the Tories, believe we need a more sustainable revenue base, and as such, their platform is calling for higher taxes.

The Liberals would introduce higher rates ranging from 13 per cent all the way up to 17 per cent for those earning over $100,000. The Liberals would also raise Alberta's corporate tax rate from 10 to 12 per cent.

Such proposals are very much in line with those being advocated in a new ad campaign from the Alberta Federation of Labour and Public Interest Alberta.

The ads question why high income earners and profitable corporations aren't paying more, and argue that we could easily ask them to do so and still have relatively low tax rates.

Of course, high income earners do contribute a great deal. According to Alberta Finance, the top 15 per cent of income earners in the province pay over two-thirds of income taxes.

We should also be careful about the assumption that higher tax rates would mean higher revenues and have no other impact.

Take Quebec, for example, which has some of the highest tax rates among the provinces: 16 per cent, 20 per cent, and 24 per cent. Presumably, those much higher rates should generate much higher levels of revenue. Except they don't. In fact, Alberta's 10 per cent flat tax generates more personal income tax revenue on a per-capita basis than Quebec's higher rates do.

Moreover, increasing taxes on capital is going to have all sorts of negative impacts on the economy. So, too, will the removing of the simplicity and efficiency of the flat tax.

Raising corporate taxes could be even more detrimental. There's no shortage of evidence showing that higher corporate taxes are associated with lower rates of growth, lower wages and lower productivity.

A study last September from economists Bev Dahlby at the University of Alberta and Ergete Ferede at Grant MacEwan University found that corporate taxes are the worst taxes for governments to raise. The most efficient way of generating revenue, they conclude, is through a sales tax.

Research from the University of Calgary's Jack Mintz — perhaps the country's leading expert on the subject — suggests strongly that Alberta needs to head in this direction.

Mintz estimates that an eight per cent sales tax would allow Alberta to cut income and corporate tax rates in half. That would provide a true sustainable revenue source and would provide the benefits that would come with shifting away from the most economically damaging forms of taxation.

Unfortunately, we remain stuck between those proposing harmful tax increases and opponents of tax increases who shy away from changes that could further strengthen Alberta's economic position.

This "conversation" is off to a rough start.

Calgary Herald, Feb 13 2012
Byline: Rob Breakenridge

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