Smith needs constitutional change to protect Albertans from future tax hikes
According to Premier Danielle Smith, her new government’s first bill will prohibit future Alberta governments from increasing personal or business income taxes without approval from Albertans via referendum. While discouraging economically harmful tax hikes is a worthy goal, any law passed by the legislature (known as “statutory” laws) can easily and unilaterally be changed by future governments. To truly protect Albertans from future tax increases, Premier Smith must introduce a constitutional rule.
When the Heritage Fund was introduced in 1976/77, according to statutory law, the government was required to deposit 30 per cent of all resource revenue, which includes oil and gas royalties, into the fund every year. If followed, this “30 per cent” rule would have helped governments spend more sustainably and avoid budget deficits. But after an oil price collapse in 1982/83, the government reduced contributions to 15 per cent, and following a second oil price collapse in 1986/87, ended mandated resource revenue contributions entirely. Again, the government was able to easily make these changes because the fund’s rules are statutory. As a result, all resource revenue is routinely included in the budget, which continues to create instability in provincial finances.
The Alberta Sustainability Fund (ASF) was another attempt to use statutory rules to save resource revenues and avoid budget deficits. Established in 2003 in statutory law, the fund was meant to “stabilize” a set amount of resource revenue for the budget, which would limit the amount of money available for spending. It worked like a rainy-day fund; save resource revenue above the set amount during good times to maintain a stable amount of resource revenue for the budget—and avoid deficits—during bad times. Unfortunately, the fund didn’t last. Following the 2008 financial crisis, consecutive provincial governments disregarded the rule and eventually drained the fund entirely. The ASF was officially eliminated in 2013.
Both the Heritage Fund and ASF started with well-intentioned rules, which didn’t last because they were statutory and therefore easy for governments to bend and break.
And yet, despite these lessons from recent history, the Smith government plans to use statutory law to help protect Albertans from tax hikes. That kind of protection likely won’t last long. But if the rule is constitutional—not statutory—it will be much more difficult to change. And it’s possible to change Canada’s Constitution for province-specific measures. First, the provincial government must conduct a referendum—in this case, ask Albertans if they agree that future taxes increases require approval via referendum. If the majority of Albertans vote in favour of the proposal, the Alberta government would pass provincial legislation to recognize the new rule and present this legislation to the federal House of Commons and Senate. Once passed at the federal level, there would be a change pertaining to Alberta in the Constitution.
To undue this rule, any provincial government would need to reverse each step in this process. In other words, seek public approval via referendum, pass provincial legislation, and request approval from Ottawa. That’s a much more complicated process than unilaterally changing statutory rules.
It’s important to minimize tax increases as they discourage work, entrepreneurship, savings and investment. But to truly protect Albertans from future tax hikes, Alberta needs a constitutional rule, which can’t be easily ignored or eliminated in the future.