Progressive tax might be the answer

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When Premier Jim Prentice floated the idea of a provincial sales tax to combat falling oil revenues, as many expected it went over like a lead balloon.

With predictions of an early election call, the premier is now looking at other ways to make up the multi-billion shortfall in provincial revenues – one that will not erode public support at the polls.

Aside from cuts and/or freezes to social programs or public service salaries, perhaps the best suggestion is the implementation of a progressive income tax to replace Alberta’s present 10-per-cent flat-rate system.

Looking at past reports and research conducted on the matter, it appears the sales tax suggestion was more a political worst-case scenario possibly designed to raise a little ire before the more palatable suggestion of a progressive tax was put forward.

According to a 2013 report published by the University of Alberta’s Parkland Institute, the idea of a progressive tax gained decent support despite being written when we were swimming in oil revenues.

The report, titled Stabilizing Alberta’s Revenues: A common sense approach, calculated “that elimination of the flat tax, which cost Alberta $1.8 billion in 2010 alone, and re-adoption of a progressive income tax regime in line with the other provinces would result in (between $1.6 billion and $13.6 billion) more in annual revenues.” Those figures depend on which provincial model Alberta mimics, the highest being that of Quebec.

According to the spring 2012 All-Alberta Survey by the U of A’s Population Research Laboratory, which the report cites, 40 per cent of Albertans would be willing to pay higher taxes to improve public services, and 60 per cent said those with higher incomes should pay tax at a higher rate.

Similarly, 45 per cent of Albertans with annual incomes between $100,000 and $149,999 supported paying higher taxes, and 64 per cent for introducing a progressive tax system. Even among those earning more than $150,000 support for increased taxes came in at 41 per cent and 44 per cent for a progressive tax.

This week, Rhys Kesselman, Canada Research Chair in Public Finance with the School of Public Policy at Simon Fraser University, made a case for a progressive dual tax system in Alberta.

His analysis, which increases tax to high-income earners – those making more than $125,000 – to 15 per cent from 10 per cent would result in an increase of $1.3 billion in revenues and a mere $1,200 in taxes paid annually for the income earner.

Implementing a progressive system might be the solution Alberta needs to help ride the resource revenue waves of the future. It is also the fairest system. It would not cost the government more to implement nor put increased financial burden on lower income families.

Whether the province decides to use a dual system or a multi-tiered system, it is a sure fire way to increase revenues and keep our taxes among the lowest in the country while staving off a sales tax and retaining the nationally-renowned Alberta Advantage.

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