Alberta Premier Danielle Smith in Calgary on Feb. 20.Todd Korol/The Canadian Press
A couple of weeks ago, I received an e-mail from my friend Jeffrey Simpson.
“Tony: What would Alberta’s fiscal position be if it imposed a 5 per cent sales tax instead of being locked into the fiscal theology that the province should never have one?”
Like a wise courtroom lawyer, The Globe’s former marquee columnist wasn’t asking without knowing the answer.
He’s written on the subject many times, as have I. The precise answer varies year to year, but the big picture does not.
Alberta, which is currently running a large deficit and expecting more big deficits to come, would be in better fiscal shape if it had a sales tax. It would also be in much more stable fiscal shape. A sales tax would be a conservative – yes, conservative – choice.
Albertans, especially those on the centre-right, should back the idea.
Alberta to present 2026 budget that includes a multibillion-dollar deficit
Here’s the lay of the land:
Nine provinces have a provincial sales tax, or one folded into the federal GST as part of the harmonized sales tax (HST). Alberta has neither. In their place, Alberta has oil royalties.
But every time oil prices drop, the province finds itself in a fiscal hole. Since the 1970s, it’s happened time and again. And again. And again.
Last month’s Alberta budget includes a $4.1-billion deficit in the most recent fiscal year. It also forecasts a $9.4-billion deficit in 2026-27. Adjusted for population, that’s like Ontario running a deficit of around $30-billion. (Ontario’s Fiscal Accountability Office expects the 2026-27 deficit to be $11.8-billion).
Oil revenues are Alberta’s fiscal advantage. Oil production has tripled since the late 1990s, which should guarantee budget surpluses, or at the very least balanced budgets, for as far as the eye can see.
Nothing of the sort has happened.
That’s because Alberta’s royalties depend not only on how much oil is pumped and mined, but what price it fetches. When prices rise, royalties disproportionately spike. When prices fall, the fall in royalties is also disproportionate. Oil royalties are uncertain and unstable.
But the main reason why three decades of rising Alberta oil output hasn’t led to endless budget surpluses is that Alberta’s governments have become hooked. The more royalties they get, the more they want. It’s like a fiscal fentanyl addiction.
Alberta expects royalties (mostly from oil, but also gas and coal) of $13.2-billion in the coming year. To put that in perspective, between 2016-17 and 2018-19, when the New Democrats were in power, royalties averaged just $4.5-billion a year.
Yet with nearly $9-billion more in royalties than in a typical year in the late 2010s, Premier Danielle Smith’s government is still projecting a deficit of $9.4-billion. That’s bigger than the average annual deficits in the late 2010s.
The trouble is that Alberta tends to spend (or finance tax cuts) with nearly every dollar of oil revenues it gets in a boom year. It then makes that the new baseline, which guarantees deficits when oil prices and royalties inevitably pull back.
A better way would be to raise more money through a stable revenue measure like a sales tax. Alberta could sock away more of its resource revenues in good times, through the Alberta Heritage Savings Trust Fund. That would be an investment for the future – which would eventually grow large enough to throw off large and stable annual dividend payments that could cushion the budget in bad times, while financing permanent cuts to other taxes, or higher spending.
Ontario’s 8-per-cent provincial sales tax embedded in the 13-per-cent HST raised $39.4-billion in 2024-25. Alberta’s population is less than one-third the size of Ontario’s, but incomes are a bit higher, so my 90-second, back-of-the-envelope math is that if Alberta had an 8-per-cent sales tax, it could bring in roughly $13-billion.
That means if a hypothetical Alberta PST were set at 5 per cent, revenue would be around $8-billion.
Result: This year’s deficit would be a surplus, and next year’s budget would be within spitting distance of balance.
You don’t have to believe me; Alberta’s recent budget includes a similar calculation. It finds that if Alberta had Ontario’s 8-per-cent PST, it would bring in around … $13-billion a year. Adopting British Columbia’s 7-per-cent rate and coverage would raise almost $10-billion.
I know the issue is not a political winner, particularly among United Conservative Party voters. But the province would be better off – and in the long run, taxpayers would be better off – with a sales tax that lowered other taxes, and allowed more oil revenues to be saved for the future.
You’re entitled to your own opinion, but them’s the facts.