Our prosperity and security depend on foundational investments in things like education, health care and infrastructure. Our economic future also depends on investment in things like diversification and climate resilience.
In order to win the confidence of voters, the NDP needs to make it clear that it will fund these investments by making profitable corporations and the wealthy pay their fair share.
Debunking the conservative tax narrative
Tax is not a dirty word. Taxes are the way we pool our resources to fund the things we need but can’t afford on our own. Things like education, health care and infrastructure.
Decades ago, conservative realized that voters like public programs and services. Promises to cut or privatize those services didn’t help win them elections.
So, instead of going after the thing that voters like – the programs and services – they went after the thing voters didn’t like: taxes.
By demonizing taxes, conservatives could kill two birds with one stone.
They could win public support for dramatically cutting taxes for the wealthy and profitable corporations – which has always been their top priority. And they could shrink the size of government and justify privatization by claiming that the cupboard is bare – even though they had deliberately made it bare.
The demonization of taxes has been at the heart of conservative political strategy for decades – and, from their perspective, it has been a roaring success.
Here in Alberta, there has been an added wrinkle: our vast natural resource wealth.
This wealth has allowed successive governments to offer Canadian-standard services to Albertans with lower than Canadian-standard taxes, especially for corporations and the wealthy.
It was a financial sleight of hand. Instead of saving or investing resource revenue windfalls, they spent them to maintain artificially low taxes.
This explains why, after decades of resource development, we have less than $20 billion saved in the Heritage Trust Fund, while Norway, which started to save it its resource revenue windfalls much later than us, has a savings fund worth more than a trillion dollars.
Alberta’s approach of spending all of our resource windfalls to maintain maintain artificially low taxes also helps the boom-bust roller coaster that has destabilized our public services for decades AND the remarkable disconnect between the health of the Alberta economy and the health of the provincial government’s balance sheet.
This approach was never wise or sustainable because it meant that funding for education, health care and other public priorities was subject to the vagaries of oil and gas prices.
Now the world is in the midst of a transition away from fossil fuels, this approach is even more irresponsible.
Sadly, despite some prebudget rhetoric from Danielle Smith about mending our ways, the UCP’s last two budgets have actually INCREASED our reliance on resource revenue. More than 30 percent of the money we spend on day-to-day operations come from non-renewable resource revenue.
Albertans understand that we need to get off the resource roller coaster. We need to find more stable and sustainable ways to fund our vital public services
In previous my previous platform planks, I argued that if we New Democrats want to win, we have to get over our reluctant to talk about the economy.
In this platform plank, I argue that if we want to actually be PROGRESSIVE when we form government, we have to get over our aversion to talking about taxes.
If we don’t, we’ll never be able to address one of the biggest real world problems facing our province – our almost absurdly dysfunctional revenue system.
And we won’t be able to give the province what it actually needs – full-throated social democratic programs and policies – to strengthen our province’s economy and prepare us for the many challenges we’re facing as a province.
Alberta needs New Democrats – but we can’t be true New Democrats if we’re not willing to deliver revenue reform.
In this section, I will outline the vision for tax reform that the Alberta Federation of Labour, the Parkland Institute, Public Interest Alberta and Friends of Medicare developed last year as part of what we called the Better Way Alberta project. It’s based on the notion that we can stabilize our finances and pay for the programs and services we need by bring Alberta into the Canadian mainstream and making profitable corporations and the wealthy pay their fair share.
The Better Way Alberta blueprint for revenue reform should become the Alberta NDP fiscal blueprint for the next election.
The Better Way
Alberta is one of the wealthiest jurisdictions in the world. Yet our healthcare system is in crisis, too many children are in overflowing classrooms without enough supports, universities and colleges are being cut while student tuition is going up, and way too many families are struggling to make ends meet and falling into poverty.
The so-called “Alberta tax advantage” is really only an advantage for profitable corporations and wealthy people. There is a better way. The Alberta government can create a more fair and equitable revenue system that strengthens our economy and enables us to invest in high quality public services that benefit everyone.
As Alberta’s population grows to nearly 5 million people, government funding needs to keep pace so we can invest in schools, hospitals, municipalities, transportation, and building infrastructure. We also must commit to increasing the number of educators, healthcare professionals, and front line workers who have been stretched to the limit by funding cuts, understaffing, and lack of support.
It’s time to make our tax system more fair for working families. Alberta can raise an additional $5 billion to $15 billion annually to invest back into communities and public services if the wealthiest 10% paid their fair share. This would avoid putting any additional pressure on the 90% of hardworking Albertans who have been shouldering the brunt of the investments into our province.
Here’s how:
1. Implement a more progressive income tax system
2. Require wealthy corporations to pay their fair share
3. Turn excess profits into cost relief for Canadian families
4. Set higher minimum royalty rates and make royalty rates more progressive
5. Establish a tax on wealth and luxury goods
The Opportunity
While this latest revenue boom is positive news for Alberta’s bottom line, it does not fix the underlying flaws with the revenue system. Alberta needs to fix the revenue system so that vital public services are not being funded based on the booms and busts of the oil industry.
It would be more sustainable and responsible to future generations to make the whole tax system more progressive and to use revenue from non-renewable resources to diversify the economy and save for the future.
The 2022-2023 provincial budget explains that if Alberta had the same tax structure as Ontario, the next lowest tax jurisdiction in Canada, the province would have an additional $14.8 billion to invest in public services ($17.4 billion for Saskatchewan and $20.4 billion for BC).2
A significant part of this difference is due to Alberta being the only province in Canada without a sales tax. However, even without implementing a sales tax, Alberta could establish more progressive income and corporate tax rates similar to other provinces. This fact sheet shows various tax reforms that could be implemented without increasing any taxes for over 90% of Albertans and could raise between $5 – $15 billion of additional revenue each year.
Implement a more progressive income tax system
Most Albertans have been led to believe that Alberta has the lowest income taxes in Canada. However, this is only true for the top 7% of tax-paying Albertans who make more than $131,000 per year. In fact, the average worker in Alberta earning $60,000 per year pays over $1,000 more in provincial income taxes than if they lived in BC or Ontario. On the other hand, a person earning $1 million per year in Alberta pays approximately $60,000 less in taxes than if they lived in BC or Ontario.
Alberta had a flat tax rate of 10% for all tax-paying Albertans from 2001 until 2015. When the Notley NDP government was elected, it established a more progressive income tax system with four additional tax brackets, but only for income over $120,000.
For the Better Way Alberta project, we calculated how much additional revenue would have been collected if Alberta used the same rates as British Columbia for the close to 250,000 Albertans (7%) with taxable income over $131,221. Overall, the increase in annual tax revenue for the province would be $1.255 billion.
Require Wealthy Corporations to Pay Their Fair Share
Between 2019 and 2021, the UCP government cut Alberta’s corporate tax rate from 12% to 8%, which resulted in billions of additional profit for corporations. At the same time, the UCP implemented cuts to workers and programs in health, education, and other human services.
Corporate tax rates in other provinces range from 11.5% to 16%, so corporations in Alberta are paying significantly less toward government revenues than if they were in any other province. Economist Troy Cochrane from Canadians for Tax Fairness calculated that for the 3 years from 2019 – 2021, the Alberta government collected $11.7 billion in corporate taxes.
However, had the UCP government not cut corporate taxes and left the rate at 12%, the government would have received an additional $6.3 billion over this time period. The four largest oil sands corporations explain in their annual reports that they have benefited a total of $4.3 billion from Premier Kenney’s corporate tax giveaway, most of that going to shareholder dividends, executive compensation, and automation projects. Troy Cochrane also reveals that Alberta corporations have seen an extremely high rate of corporate tax avoidance compared to other provinces. This means that most corporations do not even pay anywhere near the low corporate rate of 8%. Had Alberta kept the statutory rate at 12% and actually collected the full 12%, the government would have received a total of $27.8 billion—an additional $16 billion over the last 3 years.
Turn Excess Profits into Cost Relief for Canadian Families
A number of jurisdictions are implementing a tax on excessive corporate profits, particularly given many corporations have been making huge profits during the pandemic. While energy corporations are giving billions to shareholders and corporate executives are enjoying huge bonuses and salary increases, most Albertans are struggling with rising inflation due to extreme energy costs. According to research by Canadians for Tax Fairness, the 10 largest oil and gas companies in Canada claimed $29 billion of pre-tax profit in the six months from October 2021 to March 2022. That’s $10.8 billion more than their next best six month period between 2011 and 2019. For example, Suncor Energy reported in August 2022 that its latest quarterly earnings increased fourfold to $4 billion.8 Instead of investing these massive profits back into Alberta, many corporations have increased shareholder dividends. The amount of corporate profits in Alberta going to shareholders has skyrocketed to 64%, while the Canadian average is close to 50%.
Alberta should explore following the example of the United Kingdom, which implemented a 25% windfall tax on oil and gas profits so the UK could support people who are struggling to deal with the surge in the cost of living that has come from this year’s extreme energy prices. Albertans are the owners of our natural resources and so Albertans should be benefiting from high energy prices, not just international investors.
Set Higher Minimum Royalty Rates and Make Royalty Rates More Progressive
With the recent skyrocketing of world oil and gas prices, corporations are also benefiting from Alberta’s generous royalty system compared to many other global jurisdictions. Premier Peter Lougheed always reminded Albertans that we need to think like owners when we are selling our oil and gas resources. Albertans could be capturing significantly more in royalties that could be invested in diversifying and transitioning Alberta to a more sustainable economic future.
Alberta’s current royalty system allows corporations to pay off all of their expenses and profit margins while paying a very low royalty rate during what is called the “pre-payout period”. During the pre-payout period the royalty rate is only 1% of gross revenues at prices up to $55/barrel, rising to 9% when prices reach $120/barrel.
BC’s new royalty framework announced in May 2022 uses a similar revenue-minus-cost royalty system that is also price sensitive. However, their system is designed to achieve a return of 50 percent of profits on the public resource after costs are accounted for. Effective September 2022, all new wells drilled in BC will pay a minimum royalty rate of 5% on new revenues during the pre-payout period, a 40% increase from the previous rate of 3%.
Alberta should, likewise, revise the minimum royalty rate for oil sands from 1% to 5%. At current oil prices (which are very high), companies are paying a pre-payout royalty rate near 9% of gross revenues. A minimum rate of 5% for oil sands projects that are in the pre-payout phase would reduce the sudden decline in government revenue when the price of oil drops again in the future.
Likewise, the government needs to make sure the people of Alberta receive a greater share of revenues when oil and gas prices are high. The province should receive at least 50% of profits in the post-payout period when oil prices rise above $100/barrel. The government should also remove the $120/barrel maximum rate so Albertans can receive a greater share of profits if prices rise above $120/barrel. Albertans should be the ones who benefit more from the sale of our oil and gas resources at high prices rather than multinational corporations and foreign shareholders.
Establish a Tax on Wealth and Luxury Goods
With billionaire wealth and inequality skyrocketing during the pandemic, many politicians are exploring implementing new taxes on extreme wealth. Polling during the 2021 federal election showed that 89% of Canadians overall (and 83% among Conservative voters) support the idea of a wealth tax.
Canada’s parliamentary budget officer (PBO) released a report in September 2021 that calculated a 1% tax on net wealth of more than $10 million would generate $60.7 billion over a 5 year period.
Economist Alex Hemingway from the Canadian Centre for Policy Alternatives modeled a moderate wealth tax with three brackets: 1% on net wealth over $10 million; 2% over $50 million; and 3% over $100 million.
He calculates that this wealth tax would raise an estimated $28 billion in its first year, with revenues rising annually to $46 billion by its tenth year. The cumulative amount raised nationally for the wealth tax over a 10-year period would be $363 billion.
While a wealth tax could be difficult to implement at a provincial level, Alberta could call on the federal government to establish the tax and increase transfers to the province from the revenue that’s generated. At the July 2022 Council of the Federation meeting, all provinces demanded the federal government increase fiscal transfers to the provinces to address the growing crisis in health care.
Given Alberta has 11% of the Canadian population, a wealth tax at the rates proposed by Hemingway could equate to an additional $3 billion for Alberta in the first year and rise to an additional $5 billion by the tenth year.
Some municipalities in Canada have been exploring the idea of implementing progressively higher rates on luxury houses. Edmonton City Council has asked Administration “to investigate what it would mean to charge different tax rates for residential properties in different categories, such as those of higher values.”
Given the UCP’s significant cuts in funding to municipalities in Alberta, allowing additional ways for cities to set more progressive tax rates would help to support more municipal public services.
Alberta could also integrate a provincial tax into the 2021 federal government tax on luxury cars and aircrafts over $100,000.The Federal government is also bringing in a new 1% tax on vacant homes owned by foreigners. The government predicts this tax could bring in up to $175 million a year starting in January, 2023. Alberta should support the implementation of national wealth and luxury goods taxes and invest the resulting revenue to address the housing crisis and provide support and other programs for low-income families. The current rise in inequality and poverty affect the health of our communities, and it is a sad comment on our society when we have people buying mansions with their corporate tax cuts while the number of unhoused Albertans continues to rise.