Tax hikes are necessary to combat the effects of climate change

As the frequency and intensity of natural disasters in Alberta increases, so do the costs faced by the provincial government in dealing with those disasters. The question we Albertans should be asking ourselves as we try to move forward is: if this is the new normal, how do we pay for it?

The 2011 wildfire season, which included the devastating fire that destroyed a large part of the town of Slave Lake, cost the province some half-a-billion dollars in extra firefighting costs, evacuation costs, support for uninsured residents and general evacuee relief and support costs.

The total cost to the government of the 2013 floods in southern Alberta came in at a whopping $4 billion, once everything was taken into account.

And although the costs of the Fort McMurray fires to government have yet to be tallied—and are still ongoing—every indication is that they will absolutely dwarf the costs of those two other recent disasters. It is also worth noting that the Fort McMurray fire comes at the beginning of the 2016 fire season, and that there is a possibility that we will continue to see a higher-than-usual number of large wildfires all summer.

All of this comes as the province is in the midst of a significant oil-price-driven slump in the economy; a slump that has clearly exposed the province’s ongoing revenue shortfall. Last fall, the Parkland Institute calculated that shortfall to be in the range of
$5-to-$6 billion a year for operations and services, and another
$4-to-$5 billion a year when infrastructure and capital costs are taken into account.

The Alberta government includes provisions in every provincial budget for emergencies and disasters, but it is probably safe to say that those amounts do not anticipate disasters of the magnitude of the 2013 floods or this year’s fires.

So how will the government pay for all of these additional costs? Well, outside of some disaster relief that will almost certainly come this way from the federal government, most of it will likely just be directly subtracted from the province’s bottom line. In other words, what this means is that will very likely blow right by the $10.4 billion deficit the government forecasted in this year’s budget.

When faced with this kind of destruction and potential pay-outs, the insurance industry, for one, does not hesitate to raise premiums and change coverage options going forward to make sure it can remain profitable and viable. Shouldn’t government do the same thing?

Now is the time to have that conversation in earnest. And we need to make sure we have that conversation fully and completely. We need to figure out how to raise enough revenue to cover both our existing and chronic revenue short-fall that caused this year’s deficit in the first place, and the extra costs associated with these extreme disasters we are facing with increased frequency. We also need to factor in the ongoing mitigation costs resulting from our changing climate—waterway management and flood prevention, forest management, fire prevention, monitoring and early warning, and so much more.

As we have this conversation, it is crucial that we not lose sight of the critical role played by our public servants, public infrastructure and public services during this current crisis. The impacts of this disaster would have been so much worse had the provincial government heeded the opposition’s call to drastically cut the province’s health, education and social service costs and significantly cut the government managers and civil servants. These folks all worked tirelessly and selflessly during this disaster, and we need to understand that had they not been there, we would have faced other and more significant costs, including potentially lost lives.

Setting aside $2 billion a year for extreme disasters and emergencies—in addition to the amounts that we already allocate—would go a long way toward helping us cover these extraordinary costs when they occur. In years when the funds are not used in their entirety, they should be saved for future years and disasters in a fund that continues to grow. Whether those funds are raised through increased royalties, a special disaster tax, an increase to personal and corporate taxes, or some combination of the three is something we will need to figure out—but we cannot continue to pretend that these are “once in a generation” disasters. They need to be budgeted for because they will continue to happen.

This, of course, is in addition to the existing $6 billion a year we need to raise through taxes—consumption taxes or income taxes—to eliminate our existing and ongoing revenue shortfall. For too long now our government has been running our finances on a wing and prayer for higher oil prices. This year has laid bare the folly of that approach. It’s time to try something different, and it needs to start with a grown-up conversation about taxes—the sooner the better. V

Ricardo Acuña is the executive director of the Parkland Institute, a non-partisan, public policy research institute housed at the University of Alberta. The views and opinions expressed are his own and do not necessarily reflect those of the Institute.

1 Comment

  • Great article.

    Yes, the grown up conversation on taxes is way overdue. Too many years of foot stomping and tantrums when tax increases are even suggested.

    Regarding tax instrument selection, given that the increased costs are from climate change, it seems appropriate to consider an increased carbon levy, in the form of a climate disaster surtax.

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