Canada West Foundation Blog

The latest research conducted by the Canada West Foundation shows that a small locally-levied sales tax, dedicated to municipal infrastructure and implemented only if voters agree in a referendum, would help western Canadian cities close the gap between their huge infrastructure needs and the funding dollars available.

The Penny Tax: A Timely Tax Innovation to Boost our Civic Investments by Casey Vander Ploeg, Senior Policy Analyst, measures the projected infrastructure needs facing western Canadian seven biggest cities over the next ten years at over $40 billion.

“Our work shows that a small voter-approved penny tax, combined with regular and comprehensive reporting by governments, could be the most visible, transparent and accountable tax in Canada,” author Casey Vander Ploeg explains. “It has so many benefits to recommend it. One that is very important is how the tax would ensure that all individuals coming into a city and use the infrastructure also help pay for it.”

The penny tax would be a tax unlike any other in Canada because of the unique features built into the tax. Such features include a capped rate so the tax cannot be raised, voter-approval for implementing the tax, and dedicating all revenue to specific municipal infrastructure projects that would also be subject to voter-approval.

“The features I like the most in our proposal is the automatic sunset and the refund of excess revenue back to taxpayers,” said Vander Ploeg. The penny tax could only be used across two municipal election cycles, after which the tax would lapse. For the tax to be used any longer than six years, voters would have to vote the tax back in along with a new set of infrastructure projects. A sales tax can also produce revenues that exceed expectations. This tax revenue could be returned to local taxpayers.

While there are challenges that require further exploration before a penny tax could be implemented, it is clear that this innovative tax option would do much to maintain, renew, and rehabilitate existing infrastructure, as well as invest in new infrastructure. Across the globe, local governments are implementing such innovation tax solutions.

This report is part of the Canada West Foundation’s Smart Financing Project, which focuses on innovative solutions to Canadian public financing challenges.

To download The Penny Tax: A Timely Tax Innovation to Boost our Civic Investments, click here.

By: Jacques Marcil, Senior Economist

This is the season of budgets and baseball spring training. While there is no true link between the two, one could not help think of Alberta Finance minister Lloyd Snelgrove as a relief pitcher.

Snelgrove was brought in last month as an emergency caretaker minister of Finance in replacement of Ted Morton, who resigned to join the PC leadership race. (One of the worst-kept secrets in Alberta is that Morton essentially resigned because his views on government cost-cutting were too drastic for outgoing Premier Ed Stelmach’s taste.)

There were no real surprises in the February 24 Alberta budget. Usually, the absence of surprises is considered to be a positive sign. Is this the case here? Yes and no.

On the expense side, the 2010 approach is somewhat repeated: sustained financing for health, education and other “social” ministries, with modest cuts to the other ministries to offset this. This results in program spending increases of 0.5%, 1.3% and 3.1% over this year and the two following years.

On the revenue side, nothing much is done except some service fee increases. However, Snelgrove expects Alberta revenues to grow solidly on their own, reflecting very positive forecasts for economic growth and for natural resource royalties. The latter are expected to jump by 23% and 16% in 2012-13 and 2013-14 respectively. (This is not impossible, but who knows?)

As a result, the province’s deficit gets erased by 2013-14, one year later than originally planned. This delay is not bad in itself given the severity of the recession in Alberta. The problem is that the balancing act is accomplished by drawing down most of the Sustainability Fund—a meager $1.7B is left in it by that date, one-tenth of what was in the Fund in 2009-10.

So the Alberta government has little margin of maneuver and lots of hope hanging on energy price forecasts. Past experience has taught Albertans that those prices are full of surprises, positive and negative. We might have reached the point where Alberta taxpayers have had enough of this uncertainty.

You can’t have your cake and eat it too—Albertans have long enjoyed low taxes, but if they want to enjoy the same level of services as other parts of the country they will have to start considering other sources of revenue for their provincial government.

Energy royalties are nice but they are irregular and unpredictable. The province pays for most of the steadily-growing cost of its services using rollercoaster energy money. If Alberta needs to reform its tax system, it should do so. Taxes are not an ideological issue, they are a practical one. Decisions on tax policy should be fact-based, period.

To return to my baseball analogy (a very agreeable thought when the windchill factor is -36ºC outside), walks are “bad things” but even the best pitcher sometimes has to issue an intentional walk depending on the game situation. No one likes taxes, but sometimes we need them.

Given the unpredictability of Alberta politics (a misnomer until a few years ago), maybe now is not the time to start complex discussions on what size of government Albertans want, or about what taxes are needed for its proper functioning.

Thinking again about it, maybe it is the right time.

by Roger Gibbins

Today the Canada West Foundation released a comprehensive study of tax reform options for Saskatchewan.  A Tax Framework for Saskatchewan’s Continuing Prosperity was commissioned by the Saskatchewan Chamber of Commerce, the Institute of Chartered Accountants of Saskatchewan, Association of Saskatchewan REALTORS®, Certified General Accountants of Saskatchewan and the Certified Management Accountants of Saskatchewan. It can be found at here and at www.sasktaxplan.ca

This report comes in the wake of sustained, even dramatic growth in the Saskatchewan economy, conditions often associated with the opportunity for tax cuts. However, given the inherent volatility of a commodities-driven provincial economy, the report focuses more on what is taxed, how it is taxed and by whom (provincial or municipal governments) than it does on tax rates. Getting the tax system and its incentives right will contribute more to Saskatchewan’s competitive position than will tax rates themselves.

The report was prepared at a time when the newly harmonized sales tax was facing a populist revolt in BC, when the government of Manitoba dismissed the possibility of a Manitoba HST, and when Alberta had no provincial sales to harmonize. Given this competitive environment, the report explores a variety of alternative ways to meet many of the HST goals without directly endorsing harmonization.

At the present time, it should be stressed, Saskatchewan’s tax system is not wildly out of line with its provincial competitors in western Canada. Nonetheless, the report provides a number of options for further improving Saskatchewan’s competitive position.

On a different front, the Foundation continues to staff up for Powering Up for the Future, a major multi-year project on the western Canadian energy system. Mike Holden, our new senior energy economist, has been recruited from the Library of Parliament; and three Executives-in-Residence and a Research Associate have been recruited to help craft and animate the project’s policy research agenda. Mike Cleland comes to the Foundation from the Canadian Gas Association, Sheila O’Brien and Barry Worbets from extensive careers in the oil and gas industry, and Jeff Reading from the City of Calgary.

An impressive team is in place, and work is already well under way on the potential impact of unconventional gas on the political landscape in North America, the challenges of reaching Asia-Pacific markets, the opportunities and challenges posed by the emergence of the new energy economy, and the role that western Canadians can and should play in shaping a Canadian energy strategy.

The Foundation is also preparing a comprehensive atlas of the western Canadian energy system—State of the West: Energy will be released in the spring of 2011—and within a few weeks will go into the field with a national survey of public attitudes towards energy and environmental policy issues.

There is no doubt that 2010 will go out with a bang, not a whimper!

In the last decade the economy of Saskatchewan has changed dramatically—the Canada West Foundation now refers to it as the West’s Powerhouse.  While I believe this accurately capture what Saskatchewan has become, we in Saskatchewan must continue to be aware and evaluate our situation in comparison to other jurisdictions in the world.  We rely on trade to generate a significant portion of our GDP and we compete with the world for this business. Therefore, not only must the Saskatchewan tax system be fair, transparent and easily administered—it must be competitive.

The Canada West Foundation has just launched a new project that will make recommendations on keeping the Saskatchewan tax regime competitive. There have been significant changes in the economy and public policy since the last independent tax review was completed in 2005.  These changes include:

• The Province of Saskatchewan becoming part of the New West Partnership;
• The lingering global financial crisis and its impact on government revenue sources (and expenditures);
• The significant decrease in personal taxes that were introduced in the fall of 2008;
• The changing provincial revenue structure (less reliance on federal transfers and own source taxes and more reliance on royalties from non-renewable resources);
• The revamped royalty structure in the Province of Alberta; and,
• The growing amount of revenue collected from the Corporate Income Tax.

This project is the broadest independent review of the tax regime since 1965.  It is sponsored by the Saskatchewan Chamber of Commerce, the Institute of Chartered Accountants of Saskatchewan, the Association of Saskatchewan Realtors, the Certified Management Accountants of Saskatchewan and the Certified General Accountants of Saskatchewan. The review and recommendations will pertain to all provincial sources of tax revenue, the royalty structure as it relates to oil and gas and the municipal property taxes as they are levied in Regina and Saskatoon.

If you are a resident of Saskatchewan, the Canada West Foundation is looking for your input to this project. We want to hear from you so that our discussions and debates can be as well informed as possible. I encourage you to complete a short survey (10 minutes) at www.sasktaxsurvey.ca

There are number of questions in the Survey that relate to these taxes:

• Are the right types of taxes (income, consumption or wealth) being relied on?
• Is there a different impact on the economy by different types of taxes?
• Do people tend to avoid taxes if possible?

Before you go to the survey, think about this statement:

Businesses don’t pay taxes, only people do

Amounts initially paid by businesses could be passed forward to consumers (higher prices) or back to the suppliers of capital or labour (lower dividends or wages).  The timing of these shifts will depend on a number of circumstances.

It is important to participate—we can continue to be the West’s Powerhouse if we have the right social and economic framework.

This survey will be open to the public until July 31, 2010 and we will report on our findings in the fall of 2010.

Mr. Jack Vicq is the Director of the Saskatchewan Office of the Canada West Foundation.

Posted By: Jack Vicq