Modern taxation policy in Canada is based off a string of “temporary” tax schemes that never went away. Taxation policy in Canada is easily swayed by the masses. With the almost elimination of the manufactures sales tax (MST) occurring in 1927, and the short lived Alberta sales tax in 1930, taxation in Canada must be accepted by the people for it to work efficiently. This is a big problem when implementing a new tax, especially in Alberta where the slightest hint of a provincial sales tax (PST) or harmonized sales tax (HST) could end political careers. Taxes in Alberta are low compared to other provinces due to the prosperity of the energy sector and has historically allowed the province to spend money with little restraints. This is becoming especially problematic with Alberta’s over-reliance on the oil and gas industry and the economic downturn in recent years leading to larger and larger deficits. Economic growth in Alberta has essentially stalled since 2019 with the downturn in the price of oil and gas.[1] This is coupled with the effects of the COVID-19 pandemic, making Alberta the hardest hit province in the country.[2] As a way to curb the effects of the volatile energy sector, many have called for Alberta to implement some form of a PST (a tax levied by the province). Others have called for the implementation of an HST (a tax levied by the federal government in conjunction with provincial governments). Both are consumption taxes levied at the retail level and vary by percentage across the country. Alberta is the only province in Canada that does not have a PST or a HST and many see the implementation of one as a great opportunity for the province. Others argue that the implementation of a provincial tax could hinder “Alberta’s Advantage” and possibly deter business, investments, and other economic activities. This paper will look at the history of taxation in Canada and provide some context to the current taxation system in the country. Additionally, this paper will use the implementation of HST in Ontario and British Columbia (BC) as a case study and see what the provinces did right, and where they fell short. This paper will then look at two policy windows in Alberta’s history that would have allowed for the implementation of a PST. This paper will also look at the idea of the “Alberta Advantage” and why the implementation of a PST or a HST seems to be off the table. Finally, this paper will look at some taxation recommendations Alberta could take moving forward.
A Brief History of Taxation in Canada
In 1917, to finance World War I, the federal government introduced the Income Tax War Act. This was meant as a temporary measure and was being pitched to the general public as something that would end after the war. Thomas White, the finance minister at the time, stated, “I have placed no time limit upon this measure . . . a year or two after the war is over, the measure should be reviewed.[3]” Even at the time, many politicians saw this as something that would be around past the war, raising concern that the inclusion of ‘war’ in the title of the Act may be deceiving as the tax would likely be a permanent fixture in taxation policy.[4] The Income Tax War Act eventually morphed into the 1985 Income Tax Act and will have a fixed place in Canadian taxation moving forward.
The other temporary tax that never went away, and one of the topics of this paper, is the GST or goods-and-services tax. At its conception it was designed to pay for the spending that occurred during World War I. It was a one present federal tax applied to all transactions an item/article/object would pass through, excluding the final, retail sale. Presumably, this was done to ‘hide’ the tax from consumers who would see the tax every time they bought something and may not want to re-elect the politicians who put it in place.[5] This tax system put many firms and businesses without integrated distribution systems at a disadvantage to their competitors with integrated systems as they were being taxed at a higher rate. The federal government did attempt to modify the system to accommodate firms, but this made the system overly complicated and led to a total overhaul in 1924. On January 1st, 1924, the government implemented a MST. The MST was disliked by most groups, ranging from manufactures, labour unions, and farmers associations and was seen as being unequitable and regressively shifting the burden to the wrong parties.[6] To the government of the days dismay, the MST was set to be gradually eliminated with the goal of ending it in 1927. Despite the governments best effort to end the tax, in 1936 the MST was up to six percent as a way of lessening the effects of the Great Depression. The Great Depression and the following Would War II normalized taxation in Canada and allowed for government to expand taxation programs. By 1951 the MST rate was at ten percent, and the government began justifying its need for tax dollars by earmarking revenues for old age pension funds. At this point the MST and other taxes were relatively intrenched in Canadian society and economics.[7]
In 1989, then Prime Minister Brian Mulroney alongside then Finance Minister Michael Wilson proposed to replace the dated MST with a new GST with a rate of nine percent. At the time the MST was making it difficult for firms in Canada to compete and export competitively in international markets. The Mulroney government claimed that the GST would alleviate some of that strain and make Canadian businesses more competitive abroad. Despite all of this, the GST was widely hated and according to a news article at the time “the most unpopular levy since the days of the Boston Tea Party.[8]” In November 1989, the Standing Committee on Finance supported the Mulroney government’s bid to replace the MST with the GST. Instead of a levy of nine percent the committee recommend the government set the tax at seven percent. The decreased rate did not make it look any more appealing and in order to get the bill passed Mulroney had to use his executive powers as Prime Minister and appoint an additional senator to the senate. On January 1st, 1990, the GST was put into place despite backlash and mass disapproval by the opposition, businesses, and the public. During all this the government was also trying to get provinces (excluding Alberta) onboard and harmonize their existing PSTs with the governments new GST. This was not successful as many of the provinces saw this as the federal government overextending its powers.[9] It has also been proposed that many provincial governments did not want to associate with the federal government due to the wide dislike of the GST in fear of not being re-elected.[10] Quebec was the only province to sign up and in August of 1990 Quebec began administering GST alongside a Quebec Sales Tax (QST). Five other provinces did eventually sign up for a HST. Newfoundland and Labrador, New Brunswick and Nova Scotia implemented a HST in 1997, followed by Ontario and Prince Edward Island in 2010. As promised by Stephan Harper and the Conservative Party of Canada’s election platform, the GST was lowered to six percent in 2006 and was lowered once again in 2008 to the current rate of five percent.
Case Study: Ontario and British Columbia – Implementing HST
In 2009, the provincial governments of Ontario and BC, in an attempt to reduce and curb the effects of the 2008 recession, introduced a HST. This was a policy decision that had been around since the implementation of the HST but was not something fully utilized outside the Atlantic provinces (excluding PEI) until this point. In the 2008 budget plan the federal government called HST the “single most important step provinces could take to improve the competitiveness of Canadian businesses.[11]” No matter the advantages this tax would provide, it was still widely unpopular in both provinces.[12] Despite widespread unpopularity, Ontario was able to successful introduce and maintain the HST. This is contrasted with the failure seen in BC, as the HST was recalled shortly after its implementation. This section will set out the framework on how to successfully introduce a HST in Alberta using Ontario and BC as a case studies.
To oversimplify the matter, everything Ontario did ‘right,’ BC did the opposite. Ontario was able to handle the implementation of the HST rather well, and acknowledged the impact introducing a new tax would have on Ontario residence. The government was willing to increase its already enormous provincial deficit to ease the public into the new tax. This was done through “transitional supports” and other supports to ease and reassure consumers who would face the main burden of the tax. These supports came in the from of $6.6 billion in “temporary and permanent tax relief for people over three years to help consumers through the transition.[13]” Supports for families and business ‘lifelines’ were also included as a means “to help them adjust to the new single sales tax.[14]” Another point worth noting is that the implementation of HST in Ontario was not proposed as the sole solution in reducing the deficit, rather it was introduced as a part of a larger scheme of reductions and reforms.[15] Additionally, the government used strategic consultation to garner support for the tax, talking with a variety of shareholders in business communities, industries, and unions. These consultations mixed with the idea of implementing an HST being proposed before a provincial election gave the impression of choice and that the government was willing to hear and accommodate the concerns of stakeholders.
The downfall of the HST in BC is primarily centered around the public’s dislike of the tax and how it was introduced. This resulted in the use of the Recall and Initiative Act, allowing registered voters to propose a new provincial law or changes to an existing provincial law. This petition triggered a provincial referendum with almost 55 percent of people voting in favour of scrapping the HST.[16] Public dislike of the tax can, in part, be drawn to the introduction of HST in policy discussions. The HST in BC was poorly communicated, and was marketed to the people less as a way of dealing with the recession and more as a protectionist policy securing BC’s position in the Canadian economy.[17] The implication and the creation of the HST was kept a secret to much of the business community and the people of BC. There was little public and corporate consultation and little to no supports to help people transition towards a new tax. The HST was also announced after an election where it was not discussed, making it even more unwanted in the eyes of the public. Many in the province saw the HST as a “tax grab” rather than a good way of dealing with the recession.[18]
Policy Windows for Implementing a Provincial Sales Tax
In 1936, after Alberta had defaulted on its loans, Premier William Aberhart implemented a provincial sales tax. This was the first sales tax in the province and taxed most consumer/retail goods at two percent.[19] It was passed as part of The Ultimate Purchasers Tax Act and was put in place on May 1st, 1936. A couple months later the Act was replaced with The Retail Sales Tax Act, 1936 and expanded the tax exempt goods to include alcohol and tobacco products.[20] This tax was not well received and two years later it was suspended indefinitely under changes made in The Ultimate Purchasers Tax Act giving the Lieutenant Governor the ability to suspend taxes.[21] Despite the elimination of the provincial tax and due to extenuating circumstances, Alberta was able to recover money ($1,000,000 in 1938 approx. $17,900,000 in 2021) that would have been lost through the abolition of the tax.[22] In the decades following this decision, Alberta has/had profited greatly off the oil and gas industry, but in recent years this has become difficult due to declining oil prices, coupled with a lessening demand for oil.
In their paper The Presence of an Absence: The Politics of Provincial Sales Tax in Alberta, Geoff Salomons and Daniel Béland indicate two historical policy windows that would have allowed for and accommodated the implementation of a HST in Alberta. The first window was between 1993 and 1997 during the Ralph Klein administration.[23] Up until the 1980’s, which saw collapsing oil and gas prices, the government had been prospering greatly off oil and gas revenues. The Alberta Heritage Savings Trust Fund had been providing substantial tax reductions and allowed for new expenditure programs to happen. Between 1986 to 1987 resource revenues dropped nearly 62% ceasing all payments to the fund.[24] This period brought forth major spending constraints and budget cut and continued into the Klein years. Klein was able to balance the deficit without having to implement a provincial sales tax but was only able to do it through intense budget and program cuts. Salomons and Béland identify these cuts as aligning with Kleins ideational framework of reducing the size of the government and of the province’s low tax capacity being “something that should be celebrated as the ‘Alberta Advantage.[25]’” The authors go onto say that Klein used the absence of a provincial sales tax and the ability to still balance the books as a way of further solidifying the “Alberta Advantage” as an economic advantage rather than a fiscal disadvantage. “Klein effectively increased the electoral risks future premiers would face when toying with this policy idea, an idea that is largely uncontroversial in the other nine provinces.[26]” To further solidify its anti-PST stance in 1995 the Klein government passed the Alberta Taxpayer Protection Act, requiring the implementation of a PST or HST in the province to first be voted for by a provincial referendum.[27]
The second window appeared in 2015 when the NDP party got into power and Alberta faced a large provincial deficit.[28] 2015 marked another depression in oil/gas prices and the government was facing more fiscal challenges. Prior to the election, then Premier Jim Prentice held a press conference identifying the need to get costs under control and reduce the province’s reliance on resource revenue. Prentice continued by saying that “despite these fiscal challenges the province was facing, a sales tax would not be considered, despite being considered a few months earlier.[29]” When developing the 2016 budget Premier Rachel Notley and Finance Minister Joe Ceci hinted at the possibility of a PST but said that nothing would happen prior to 2019. Notley stated in an interview in 2016: “In the long-term, is this a conversation we need to have? I think it is. But not right now.[30]” Notley later said in an interview, “[an] issue like a sales tax is something that, quite frankly, you need to put to the population. You can’t just pull it out of your back pocket without ever giving them any heads up or any opportunity to engage in it.[31]” In their paper Salomons and Béland said that “despite the opportunity provided by the advent of the first NDP government in Alberta’s history, Notley refused to support the PST. Instead, she alluded to the electoral risks associated with the sales tax in the province, a policy alternative that has long become the ‘third rail of Alberta politics.’[32]” They go on to say that despite Notley’s and the NDPs desire to find policy alternatives, the “Alberta Advantage” looms over policy decisions and makes it hard to look at new policies in the first place.
The “Alberta Advantage[33]”
When discussing the implementation of a HST in Alberta there is much conversation around the idea of hindering or eliminating the “Alberta Advantage.” This idea is centred around the notion that Alberta having lower taxes (income, corporate, and consumer/sales) gives the province an advantage compared to other provinces when it comes to investment and business. Therefore, any move towards raising or implementing news taxes is seen as a move against this advantage. This is something that has become very ingrained in taxation policy in Alberta, and is reinforced through political culture, identity, and policy feedback.[34] It has additionally been a risky move for prospective politicians that are willing to implements a sales tax as the prospect of being re-elected is at risk. Unlike in BC and their push towards getting a HST as to not get ‘left behind,’ Alberta’s plea against a PST or HST is much the same. Albertans fear that a PST or HST would negate the “Alberta Advantage” and the lost investments that could occur.
Implementing HST in Alberta – Recommendations
Introducing a HST in Alberta would allow the province to raise money and help combat the volatility of the oil and gas sector. Additionally, a HST would piggyback off of the federal government GST allowing for the government to extend its taxation capacities rather than creating a new tax. This would require minimal resources and low administration costs when applying the tax. If Alberta wanted to raise money through a new tax, a consumption tax, like HST, would be a great idea as historically, consumption taxes tend to be more efficient than other taxes. As proposed in Philip Bazel and Jack M. Mintz article Enhancing the Alberta Tax Advantage with A Harmonized Sales Tax, a tax rate of 8% would generate $8 billion a year[35], allowing the government to cover “transition costs” and long-term subsidy programs. Subsidies could also be put towards lowering individuals/corporate income taxes, further instilling the “Alberta Advantage.” Like the implementation process in Ontario, the Alberta government would have to conduct large-scale consultation of the many stakeholders in Alberta’s economy. Public opinion on the implementation of any type of provincial sales tax has been historically negative therefore communication about the new tax is pinnacle and required if the government wants to get Albertans on board. This is especially important since the aforementioned Alberta Taxpayer Protection Act requires a public referendum before government approval of a new sales tax.
[1] Carter McCormack and Guy Gellatly, “This Presentation Provides Highlights on the Economic Impacts https://www150.statcan.gc.ca/n1/pub/11-631-x/11-631-x2021002-eng.htm.
[2] Ibid
[3] “History of Taxes,” Canada.ca (Governemnt of Canada / Gouvernement du Canada, January 31, 2019), https://www.canada.ca/en/revenue-agency/services/tax/individuals/educational-programs/learning-about-taxes/learning-material/module-1-understanding-taxes/history-taxes.html.
[4] Robert Easton Burns, The Income War Tax Act, 1917: A Digest (Ontario, 1917), https://wartimecanada.ca/sites/default/files/documents/IncomeWarTax.1917.pdf.
[5] “Canadian Sales Tax Reform,” Tax Executive, May 25, 2016, http://taxexecutive.org/canadian-sales-tax-reform/.
[6] John F. Due, “Canada’s Experience with the Manufacturers’ Sales Tax,” The Journal of Business 27, no. 3 (July 1954): p. 243, https://doi.org/10.1086/294043.
[7] Ibid
[8] Peter C. Newman, “Why Mulroney Is Obsessed by the GST: Maclean’s: October 8, 1990,” Maclean’s |The Complete Archive (Maclean’s, October 8, 1990), https://archive.macleans.ca/article/1990/10/8/why-mulroney-is-obsessed-by-the-gst.
[9] Richard Domingue and Jean Soucy, “THE GOODS AND SERVICES TAX: 10 YEARS LATER,” The goods and services tax: 10 years later, June 15, 2000, https://publications.gc.ca/Collection-R/LoPBdP/BP/prb0003-e.htm.
[10] Ibid
[11] “Archived – Budget 2008 – Budget Plan – Chapter 3: Strengthening Canada’s Tax Advantage,” Archived – Budget 2008 – Budget Plan – Chapter 3: Strengthening Canada’s Tax Advantage (Department of Finance Canada, February 26, 2008), https://www.budget.gc.ca/2008/plan/chap3b-eng.html.
[12] George M. Abbott (2015), “The Precarious Politics of Shifting Direction: The Introduction of a Harmonized Sales Tax in British Columbia and Ontario,” BC Studies 186, 125-148; http://ojs.library.ubc.ca/index.php/bcstudies/article/download/185567/185541
[13] Ontario, Ministry of Finance, news release online, “Ontario Budget Creates Jobs for Families Today and Builds Economy for Tomorrow,” 26 March 2009.
[14] Ibid
[15] George M. Abbott (2015), “The Precarious Politics of Shifting Direction: The Introduction of a Harmonized Sales Tax in British Columbia and Ontario,” BC Studies 186, 125-148. http://ojs.library.ubc.ca/index.php/bcstudies/article/download/185567/185541
[16] “Report of the Chief Electoral Officer on the 2011 HST (Harmonized Sales Tax) Referendum,”Elections BC, August 26, 2011, https://elections.bc.ca/docs/rpt/2011-CEO-HST-Referendum- Report.pdf.
[17] George M. Abbott (2015), “The Precarious Politics of Shifting Direction: The Introduction of a Harmonized Sales Tax in British Columbia and Ontario,” BC Studies 186, 125-148. http://ojs.library.ubc.ca/index.php/bcstudies/article/download/185567/185541
[18] Ibid
[19] “The Ultimate Purchasers Tax Act,” 1936,
[20] “The Retail Sales Tax Act, 1936,” 1936, https://docs.assembly.ab.ca/LADDAR_files/docs/bills/bill/legislature_8/session_1/19360206_bill-108.pdf.
[21] “An Act to Amend The Ultimate Purchasers Tax Act,” 1937, https://docs.assembly.ab.ca/LADDAR_files/docs/bills/bill/legislature_8/session_4/19370803_bill-012.pdf.
[22] Grant MacEwan, Pat Burns, Cattle King (Saskatoon: Western Producer Prairie Books, 1981), https://archive.org/details/patburnscattleki0000mace/page/176/mode/2up?q=tax, 176-177.
[23] Geoff Salomons and Daniel Béland, “The Presence of an Absence: The Politics of Provincial Sales Tax in Alberta,” American Review of Canadian Studies 50, no. 4 (January 2020): pp. 418-435,https://doi.org/10.1080/02722011.2020.1851980.
[24] Ibid
[25] Ibid
[26] Geoff Salomons and Daniel Béland, “The Presence of an Absence: The Politics of Provincial Sales Tax in Alberta,” American Review of Canadian Studies 50, no. 4 (January 2020): pp. 418-435, https://doi.org/10.1080/02722011.2020.1851980.
[27] “Alberta Taxpayer Protection Act,” Alberta Taxpayer Protection Act – Open Government, February 1, 2017, https://open.alberta.ca/publications/a36.
[28]Geoff Salomons and Daniel Béland, “The Presence of an Absence: The Politics of Provincial Sales Tax in Alberta,” American Review of Canadian Studies 50, no. 4 (January 2020): pp. 418-435, https://doi.org/10.1080/02722011.2020.1851980.
[29] Ibid
[30] Ibid
[31]Geoff Salomons and Daniel Béland, “The Presence of an Absence: The Politics of Provincial Sales Tax in Alberta,” American Review of Canadian Studies 50, no. 4 (January 2020): pp. 418-435, https://doi.org/10.1080/02722011.2020.1851980.
[32] Ibid
[33] More often referred to as “Alberta’s Tax Advantage” “Alberta’s Tax Advantage,” Alberta.ca, https://www.alberta.ca/alberta-tax-advantage.aspx.
[34] Geoff Salomons and Daniel Béland, “The Presence of an Absence: The Politics of Provincial Sales Tax in Alberta,” American Review of Canadian Studies 50, no. 4 (January 2020): pp. 418-435, http://doi.org/10.1080/02722011.2020.1851980.
[35] Jack Mintz and Philip Bazel, “Enhancing the Alberta Tax Advantage with a Harmonized Sales Tax,” SSRN Electronic Journal, September 2013, https://doi.org/10.2139/ssrn.2330562.
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