Enhancing the Alberta Tax Advantage with a Harmonized Sales Tax

40 Pages Posted: 26 Sep 2013

See all articles by Jack Mintz

Jack Mintz

University of Calgary - The School of Public Policy; CESifo (Center for Economic Studies and Ifo Institute)

Philip Bazel

University of Calgary - The School of Public Policy

Date Written: September 24, 2013

Abstract

Alberta enjoys a reputation as a fiercely competitive jurisdiction when it comes to tax rates. But the reality is that the province can do better with a tax mix that has greater emphasis on consumption, rather than income tax levies.

While Alberta has a personal tax advantage compared to other Canadian jurisdictions — but not the United States — it relies most heavily on income taxes and non-resource revenues that impinges on investment and saving. Taxes on new investment in Alberta’s non-resource sectors are no better than average, compared to other countries in the Organization for Economic Cooperation and Development, or OECD, so it is not exceptionally attractive to many different kinds of investors. And Alberta’s corporate income tax rate is not much more competitive than the world average for manufacturing and service companies.

By introducing the Harmonized Sales Tax with a provincial rate of 8 per cent (in addition to the federal 5 per cent rate), Alberta has the ability to make its tax system more competitive. An HST would even allow the province to entirely eliminate income tax for the majority of families. And because the HST would be easily administered using the same collection mechanisms that already exist for the GST, implementing a new Alberta HST could be done relatively smoothly and with minimal additional administration costs. Adopting an Alberta HST is the simplest, most efficient and fairest way to reform the provincial tax system, and will deliver noticeable benefits to Albertans, most visibly in the form of significant income tax relief.

It would enable the province to raise the income-tax exemption from $17,593 to $57,250, making it possible for couples to earn up to $114,500 free of any provincial income taxes. In addition, the province could lower income tax rates for income over that amount from 10 to nine per cent. And with the revenue from the HST, Alberta would have the capacity to lower its general corporate income tax from 10 to 8.43 per cent, reducing taxes on investment. An HST could also bring in an estimated $800 million in additional annual revenue from tourists and visitors, and would likely entitle the province to a $1.3 billion HST transition payment from the federal government.

If the government can convince Albertans that the sales tax would be revenue neutral, and can promise simultaneous significant tax cuts to personal incomes, as well as corporate tax reductions that will enhance Alberta’s competitiveness, then winning public support is possible. The task of persuading the public must fall to bold politicians. But if provincial legislators truly value tax fairness, competitiveness, and the future fiscal stability of the province, they have a duty to convince voters that an HST is the right choice for Alberta.

Keywords: Harmonized Sales Tax, income tax, tax rates, tax mix, Alberta HST, Alberta GST, HST, GST

JEL Classification: E62, H21, H20, H23, H24, H71, K34

Suggested Citation

Mintz, Jack and Bazel, Philip, Enhancing the Alberta Tax Advantage with a Harmonized Sales Tax (September 24, 2013). SPP Research Paper, Volume 6, Issue 29, September 2013. Available at SSRN: https://ssrn.com/abstract=2330562 or http://dx.doi.org/10.2139/ssrn.2330562

Jack Mintz (Contact Author)

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada
403-220-7661 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Philip Bazel

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada

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