Tuesday, April 28, 2015

2015 Provincial Budget Thoughts

The upcoming election has me reflecting on the proposed 2015 provincial budget and I wanted to share my thoughts on it.  My initial reaction to the 2015 budget was probably like everyone else’s – I was pissed off and highly critical.  After all, no one likes to see increases in user fees or taxes.  After coming to terms with the fact that the government needs to make up an extremely large projected deficit and that Alberta in general needs to get off of oil revenue roller coaster, I was able to look at the budget from a more logical perspective.

There are some much needed changes that are introduced in the budget:

·         Progressive personal income tax – it’s about time!
·         Increase in fuel and sin taxes – an easy target to generate revenue and agreeable under the circumstances.
·         Increase to licence fees and fines – another necessary evil.
·         Cuts to provincial services – fine, but it’s likely they will download that cost onto municipalities who will have no choice but to pass that onto the taxpayer through property taxes.  Either that, or drastically cut service levels.
·         More tax breaks to seniors and low income families – a good idea which will increase their standard of living in Alberta.
·         Return of Health Care Premiums – Pros: the health care system is in desperate need of additional funding and the progressive system shouldn’t hurt lower income families because it doesn’t start until $50k/yr in earnings.  Cons: revenue doesn’t come close to covering service demands and it doesn’t address the fact that migrant workers still don’t pay into Alberta’s healthcare system.  The final analysis – mildly palatable.

Critical points:

·         Corporations, who have the ability for more tax deductions than any other taxpaying body, are not sharing in any of the increases.  A 1% increase would generate about $500M/yr in revenue and which could potentially fund off a lot of the cuts that are being proposed.  It would also keep Alberta tied for the lowest corporate tax rate in the country.
·         Cuts to health care and education don’t make a lot sense since the demand for these areas are increasing due to an increase in population numbers.  In addition, the education portion on property taxes has risen substantially this year, essentially giving you less service for more money.
·         The progressive tax system isn’t progressive enough.  I hate the idea of having to pay more taxes, but if it’s going to happen, I want it to make a difference.  In this case, there is no increase if you make less than $100k/yr.  In Alberta, that’s slightly lower than the median wage.  This means that most people won’t pay any more tax than they did before.  That threshold could easily have been lowered to include the median wage of $87,000/yr to help spread out the financial burden.
·         No sales tax.  A hotly debated topic, but I believe we need a 3% sales tax to offset the costs.  Sales taxes are paid by everyone who buys things in the province.  They typically aren’t charged on unprocessed foods, so it doesn’t cut into basic living costs.  The theory is that we could generate revenue from non-residents (i.e. non-taxpayers like migrant workers and tourists) who help to beat up our roads and use tax-subsidized public services (social services, recreation and entertainment).  It costs the rich more because they presumably spend more and is estimated to generate $1 billion for every 1% of sales tax.  On the flip side businesses hate collecting and reporting it, and people don’t like paying it.  There are some that think a sales tax will harm Alberta’s competitive advantage for retailers, however, a small sales tax should still keep us enticing to cross-border shoppers (12% HST in BC, 10% HST in SK).
·         No changes in oil royalty rates.  Now is probably the worst time to introduce an increase in royalties since Alberta is heavily reliant oil companies for these revenues.  However, once the finance situation is stabilized, increases should be discussed so Albertans get more of their fair share.

Governments have their reasons for implementing and setting various taxes/fees and every one of them will tell you that they are right.  The truth is there is no right or wrong answer here, just better or worse options.  The provincial finance engine is a complicated one and although we can speculate what the outcome will be, we’ll never really know until we see its impact.

Whether you agree with it or not, the budget does reflect a plan to balance the books within a few years.  My main critique on the budget is that it under-delivers when it comes to weaning us off of oil revenues and gives corporations a free pass in ponying up their share.  It seems to me that the drastic steps taken will result in lower service levels and continue to perpetuate problems on a municipal level.  It will also have a major impact on education, healthcare and social programs.  In the end, the province will stay afloat, but the richest province in Canada will still not thrive.

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