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I think it would be wise for Alberta (and the other resource rich provinces) to save their resource rents and try to fund current spending from taxation rather than rents.

I can sympathize with the argument that because Alberta is not a sovereign entity, that creating a sovereign wealth fund leaves it vulnerable to confiscation by the federal government. A weaker argument is that because Alberta's population is semi-transient, if they save their rents, more people will move there to take advantage of the endowment.

The next step, ISTM, is to compare own-source revenues and provincial PIT, CIT and sales tax rates. Ontario has lower rates for all of these than Quebec and the Maritimes. Are are comparable to BC and lower than Saskatchewan and Manitoba, IIRC. So of all the provinces it seems like Ontario could actually raise taxes and perhaps should.

"I can sympathize with the argument that because Alberta is not a sovereign entity, that creating a sovereign wealth fund leaves it vulnerable to confiscation by the federal government."

I've not heard that argument, and I'm not sure it's right. In Canada, sovereignty is divided between the federal government and the provinces. Legally, Alberta is every bit as sovereign within areas of provincial jurisdiction as the federal government is within areas of federal jurisdiction. Although we think of the feds and the provinces as being different levels of government, really they're different faces of one sovereign, namely the crown (which makes for entertaining court cases between the feds and provinces with her Majesty as the named party on both sides). For the same reason, Alberta isn't subject to taxation by the federal government - the feds can't tax the Crown.

Of course, the federal government could send in the army and seize Alberta's wealth, but since that happens to sovereign nations from time to time to, it's not clear how being a sovereign nation makes much of a difference.


In measuring the "tax price, should you also factor in the incidence of the tax used to fund transfers from the federal government? In you example above, federal transfers are treated, effectively, as free money - which is why every province has a price less than 1. From the perspective of a provincial government, that analysis makes sense, since they have to take federal transfer as given. From the perspective of provincial taxpayers, that perspective doesn't make sense, since they're the ones who are ultimately paying for those transfers. Moreover, in measuring "fiscal capacity", I'm not sure you can look at provincial taxes in isolation.

That is a good point Bob. I'm looking at the provincial taxes in isolation but there is also the incidence of federal taxes. As the line goes, there are three levels of government in Canada but only one taxpayer. It is why I refer to these numbers as an estimate of "tax price".

The disjoint between the "tax price" to provincial governments and the "tax price" to provincial taxpayers, has led to some strange provincial policies. Back when Ontario was a "have" province, I can recall the provincial government (along with BC) lobbying the feds for more health care transfers. From a political perspective that made sense, from the perspective of Ontario taxpayers it didn't, since every extra dollar in federal spending was costing them (collectively) a $1.20 (or something like that) in higher taxes. The province would have been further ahead to urge the feds to reduce their spending (and taxes) and raise the money themselves (which would only cost Ontarians an extra dollar).

Mind you, these days, maybe it makes more sense.

I think Andrew F is trying to make a case that Canada *could* choose to use the system Australia uses, whereby Australian States are on a symmetrical transfer system: lower-income/wealth states get extra transfers, the excess income/wealth of rich states is redistributed in total by the Commonwealth.

AIUI Western Australia, for example, would have all resource rents subtracted from its federal transfers without question and therefore couldn't build up a sovereign wealth fund. This is a structural feature of the Australian system.

But Canada doesn't do this because the constitutional basis of income tax in Canada and Australia is different. In Oz the Commonwealth controls income taxes and GST totally and utterly, the states there are dependent on transfers with compliance penalties to a degree unthinkable in Canada. Quebec would scream blue murder.

Nobody is stopping Alberta building up a sovereign wealth fund, certainly not Ottawa.

"Does this suggest that in some provinces, more own source revenue effort could be applied?"

Are you suggesting that PEI, with among the highest sales taxes, income taxes and fairly high basic corporate tax levels should apply more revenue effort? Our lower tax burden per capita is a reflection of the fact that we have substantially lower incomes.

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