Alberta rejects the Canadian legacy of tax injustice

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Rachel Notley led the Alberta NDP to victory on May 6 calling for higher taxes on corporations to pay for more teachers and better health care. Interestingly, in 1990, Bob Rae led the Ontario NDP to victory pointing to corporations that paid no income tax.

The federal NDP is calling for higher corporate taxes, hoping it will become an election issue in October, a rallying point for Canadians fed up with the underfunding of health care, and other government services.

CCPA economist Marc Lee found (before the arrival of the Harper Conservatives) that  "the top 1 per cent of families paid a lower total tax rate in 2005 than the bottom 10 per cent of families." 

Knowing that some people are not paying their fair share elicits strong emotions. When a talented leader such as Rachel Notley addresses blatant injustices, people get mad and go out and vote.

Before and after the Second World War, a major source of federal tax revenue was corporate income tax. Corporate profits were understood to depend on the contribution of workers and their families, and of governments. Corporate taxation -- a levy for services businesses received -- helped build post-war Canada and pay down the accumulated war debt.

Through lobbying and international pressures, corporate tax rates have fallen so far that the corporate income tax now represents a small portion of government revenue. Indeed, governments are subsidizing corporations, instead of looking to them for revenue.

Despite increasingly low tax rates, Canadian corporations have succeeded in avoiding taxes by placing profits in offshore tax havens. As Canadians for Tax Fairness have shown, corporate assets held offshore amounted to $199 billion in 2014. This figure does not include what wealthy individuals have stored away outside Canada.

Over the period of more rapid growth in the 30 years after the war, graduated personal income tax replaced corporate taxes as the main source of federal government revenue.  The virtue of a gradually increasing income tax is that what people pay is directly related to what they can afford.

Under progressive taxation, the percentage of personal income paid in tax increases gradually as income rises.

Initially, low-income and high-income earners alike pay the same percentage of tax. Moving up the income scale, the amount of tax on additional income increases in stages. The more graduated the tax system, the more the wealthy pay in tax.

Taxes enable all to benefit from what society has to offer. Tax justice suggests those with higher incomes and greater wealth have more capacity to contribute to society than other citizens, and should be taxed accordingly.

Elected in 1984, the Mulroney Conservatives made the tax system less just and more unfair. Mulroney reduced the graduated personal income tax, taking the ten personal income-tax brackets and reducing them to three.

Incredibly, his government declared a holiday for capital gains taxation, allowing the wealthy to sell their assets for profit free of tax. Having eliminated tax owed on appreciated assets, wealth holders were free to then turn around and buy the same assets back, which is what happened.

Overall, Mulroney shifted the tax system away from taxation of income (personal and corporate) and towards taxation of consumption by introducing the hated Good and Service Tax.

The GST meant high-income and low-income earners paid a seven per cent uniform rate on consumer purchases. In an attempt to make consumption taxes more fair, the government offered money to people with lower incomes in the form of GST credits. The amount of compensation declined over time.

Because consumption taxes ignore ability to pay, the GST made tax injustice a potent electoral issue. The federal Conservatives were reduced to two seats in the 1993 election following the adoption of the GST.

Under Ralph Klein, elected in 1992, the provincial Conservatives established Alberta as a tax haven. The Klein government allowed modest taxation of growing conventional oil and gas production. Because the industry was rapidly depleting the non-renewable natural resource, it was enough to raise revenue.

Wasting the resource heritage of all Albertans just to brag about low taxes made no economic sense, it was exceedingly bad for the environment and ultimately bad for the reputation of the province.

The Prentice government budget boasted that Alberta had the lowest rates of taxation of any Canadian provinces.

The consumption charges introduced by the defeated Alberta Conservatives turned out to be widely unpopular. There is a good reason for the Alberta NDP to avoid regressive taxes such as a sales tax: it would ensure Notley gained wide unpopularity.

Now the Notley government gets to address tax injustice in Alberta. They will oppose it loudly, but corporations expect Notley to fulfill her electoral promise to raise corporate taxes.

While staying away from unfair consumption taxes, the Alberta government should revert to a graduated or progressive personal income tax. Under the provincial Conservatives, Alberta was one of the few jurisdictions in the world to introduce a flat tax on income. Understandably, wealthier individuals prefer a flat tax since they pay less than in a graduated tax system.

In the Alberta flat tax system, all paid 10 per cent of income in tax. It was the same 10 per cent, no matter how high or low the taxable income. It was the same amount on every additional dollar of income.

Simply introducing four tax brackets (as at the federal level), and following the example of other provinces in establishing tax rates, would create a more just system for delivering needed Alberta government services in education, health, recreation and culture. 

In rejecting austerity, spending for important infrastructure should be funded from borrowing, and set up in capital budgets, not funded from income tax revenue.     

The financially secure are better placed to do more for others, at less real cost to themselves. If the Alberta NDP continues to build on the Notley message about the importance of fairness in taxation, it should be interesting to watch if the voting Canadian public reacts the way Alberta voters did.

Duncan Cameron is the president of and writes a weekly column on politics and current affairs.

Photo: Don Voaklander/flickr

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