Recent calls for a harmonized sales tax in Alberta fundamentally misunderstand the province’s fiscal problems, which are driven primarily by years of rapid spending growth, not a drop in revenue.

Albertans have already been hit hard over the past year by significant increases to taxes on corporate and personal income, excise tax increases on products such as alcohol and gasoline, and higher fees for vehicle registration, marriage licenses, and birth and death certificates. The looming new carbon tax will further increase the overall tax burden on Albertans. The last thing businesses and consumers need is yet another new tax piled on top without reductions elsewhere.

Instead, to eliminate the deficit the government should strike at the root cause, which is the failure of successive governments to restrain spending.

Nevertheless, it is worth contemplating the merits of a provincial value-added sales tax independent of the budgetary situation. Introducing a harmonized sales tax in Alberta isn’t necessarily a bad idea—it’s just not the right way to eliminate the deficit.

A new sales tax could make sense for Alberta if the revenue is used to reduce other, more economically harmful taxes such as corporate and personal income taxes, with the result being no additional revenue for the government. A significant body of research literature shows that pure consumption taxes cause less economic harm per dollar in government revenue raised than other taxes. If other, more economically damaging taxes are cut at the same time and by the same amount, the result is a net gain for Alberta’s economy.

Harmonizing the proposed PST with the federal GST could improve tax efficiency and help spur economic growth. Indeed, evidence from Atlantic Canada suggests that harmonizing sales taxes can reduce distortionary taxes on business inputs that hurt economic growth without increasing consumer prices.

An HST for Alberta should not be implemented if it is yet another revenue grab. Creating a new sales tax as part of a strategy to eliminate the deficit through ever-higher taxes would be misguided, but that doesn’t mean that we shouldn’t give consideration to more efficient ways to generate government revenue.