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Penny Ante: A One Cent Tax To Transform Calgary

A group of Calgary businessmen want to raise taxes in their city. Wait, what?

Dec 1, 2011

by Max Fawcett

The capacity crowd that packed the Calgary Chamber of Commerce’s Enmax Ballroom on a warm fall day in September could be forgiven for wondering if hell had, at long last, frozen over. After all, they were there to hear a presentation on the merits of a new tax, one that was being delivered not by a politician or a well-meaning community group but instead by a group of well-known and highly respected businessmen. Stranger still, those same businessmen were proposing that the tax be ratified by the citizens of Calgary in a plebiscite.

Illustration by Anthony Tremmaglia

Asking Calgarians to voluntarily raise their own taxes might seem like the prelude to a comprehensive mental health examination, but George Brookman, Bruce Graham, Brian Felesky and the other members of Transformation Calgary, the group behind the idea, insist that they haven’t lost their minds. The so-called optional penny tax, which would effectively add a point to the GST and be collected along with the federal levy, would be tied to specific cultural and recreational infrastructure projects they believe taxpayers will be willing to support. “Calgary is in a different place today than it was 10 years ago,” says Bruce Graham, the president and CEO of Calgary Economic Development. “We’re now a global centre and we need to act and think like a global centre. We need the infrastructure of a global centre if we’re going to attract the best and the brightest.”

For now at least, Calgary doesn’t have that infrastructure. Transformation Calgary co-chair Brian Felesky estimates there is almost $3 billion worth of cultural and recreational facilities in need of funding in the city, including a new home for the Glenbow Museum and a new convention centre – part of a province-wide infrastructure deficit. Fellow co-chair George Brookman thinks the shortfall in funding is largely a result of having to depend on the fickle funding provided by the federal and provincial governments. “It really, to me, makes no sense whatsoever to run a city of a million-plus people with ad hoc little bits of funding,” he says. “Will we be collecting bottles next?”

They may have to, if the push by Stephen Harper’s government for more fiscal austerity comes to pass. According to Casey Vander Ploeg, a senior policy analyst at the Canada West Foundation and the author of The Penny Tax: A Timely Tax Innovation to Boost Our Civic Investments, the austerity will quite possibly include cutbacks to infrastructure spending. “Sooner or later, the federal and provincial books will have to be drawn back into balance,” he says.

“Historically, capital investment has always served as one of the first targets for reduced spending when budgets are tightened.”

Brookman and the rest of Transformation Calgary want to break that cycle of dependence on government largesse. “What we’re envisioning here is an entirely new process,” Vander Ploeg says, “where the projects to be funded are clear; the tax rate is clear; it’s capped; the revenues are earmarked; it’s a specific term; and voters will get the final say.” This kind of tax isn’t without precedent – there are 36 states in the U.S. that allow local governments to access tax tools. Vander Ploeg estimates there have been 400 referenda on temporary taxes in the last decade alone in the U.S. at the state level and below, and they’ve met with voter approval around 75 per cent of the time.

Transformation Calgary still has a long way to go when it comes to convincing Calgarians, though. In the days after the official Transformation Calgary announcement, the Calgary Herald hosted a poll on its website that asked readers if they’d support the penny tax. Of the almost 2,500 people who participated in the poll, more than 70 per cent voted ‘no.’

Scott Hennig, the spokesperson for the Canadian Taxpayers Federation, is one of the naysayers. “If these businessmen in Calgary really want to do something and fill the so-called infrastructure gap they’re concerned about,” he says, “then they should get together a group of their friends and do like David Dorward did [Dorward was a key figure behind the push to build a new basketball facility, the GO Community Centre, in Edmonton] and get drips and drabs of money together and do some private fundraising and find partners and put it together that way rather than dinging taxpayers for an extra $300 million a year.”

Jack Mintz, the Palmer Chair at the University of Calgary’s School of Policy Studies, is even more withering in his criticism of the idea. “I think it’s dead on arrival,” he says. “The federal government is not going to agree to thousands of municipal GST rates. It’s tough enough having variations across provinces – to start having them across municipalities is bizarre.” Mintz is also concerned about the impact the tax might have on local consumption patterns. “You’ll get severe cross-border shopping issues if there are differential rates,” he says. “Let’s say Calgary has a six per cent rate and Airdrie has five per cent. CrossIron Mills will be more than happy to have people from Calgary coming in and shopping there instead of going to shopping centres in Calgary.”

Brookman admits that negotiations with the federal and provincial government are still in their early stages. But he thinks waiting around for the government to rubber-stamp an idea is the wrong approach. “Like all political movements, governments are reluctant to start the parade. It’s up to us, the citizens, to start the parade, and then they’ll join us.” Felesky, too, understands that the proposed penny tax faces certain legal and administrative hurdles, but agrees they can be  overcome. He says the Federal First Nations GST Act, which allows aboriginal groups to levy and collect GST on reservations, establishes a useful precedent because of the flexibility it allows individual jurisdictions. And despite the opposition, Brookman, Felesky and the rest of Transformation Calgary would like to have the measure on the ballot in time for the city’s 2013 municipal election.

Whether it would meet with voter approval is an open question. But Vander Ploeg, for one, is optimistic that the public can be brought around on the idea’s merits. “The whole issue of taxation is very much a value proposition,” he says. “Yes, voters and taxpayers can get offside if they believe taxes are continually rising and they don’t see value being returned for the taxes they pay. But this would be Canada’s most accountable, visible and transparent tax.”

If it finds traction with Calgary voters, it might just set an example that other cash-strapped municipalities in the country could follow. “This is an initiative not just for Calgary, not just for Alberta, but for municipalities across the country,” Felesky says. Indeed, according to Vander Ploeg, it may even change the way governments look at tax policy as a whole. “Governments will work very hard to maintain accountability and transparency with this tax, because if they don’t, they run the risk of losing a tax stream. This changes the game of taxation in Canada in a very big and fundamental way.” And if it fails? As an editorial in The Economist suggested in a June 2011 story, Calgary and the rest of urban Canada will continue to wither from neglect. “Four out of every five Canadians now live in a city, and most economic activity takes place in them,” it said. “Unless they receive the public investment they need, Canadian cities will slowly become less desirable places in which to live and work.”

What do you think about Calgary’s proposed penny tax? Vote here.


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