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The taxation authority of the federal and provincial governments is prescribed in the Constitution Act, 1867, with federal authority including both direct and indirect modes of taxation and provincial authority limited to direct taxation. At the time Saskatchewan became a province, there was already a broad range of municipal levies that included a personal income tax, a business tax, a property tax, succession duties and a poll tax of $2 per person to finance education. Upon becoming a province, Saskatchewan introduced its own revenue measures, including a supplementary revenue tax on land in support of education, user fees, and a general corporations tax on most businesses including financial institutions, telegraph and railways. It also received an annual subsidy from the federal government in lieu of natural resource levies. Once World War I began, Saskatchewan and other provinces introduced a Patriotic Revenues Tax on both urban and rural properties. This was raised throughout the war and was renamed the Public Revenue Tax in 1917, the same year the federal government introduced a personal income tax as a temporary war measure.

After World War I, the province continued to rely on a combination of property-based levies, corporation taxes, and user fees. However, in 1928 it began moving toward the modern-day tax regime by introducing a gasoline tax. In 1930, a constitutional amendment provided Saskatchewan with the authority to tax natural resources. The province introduced a personal income tax in 1932, while at the same time abolishing municipal governments’ right to levy income taxes. Finally, in 1937 Saskatchewan introduced a broad-based sales tax at a rate of 2% to finance education. A rapid increase in provincial tax rates occurred as Canada entered the Great Depression, a period of lower incomes, high unemployment, and increasing demands for public services. This was especially true in western Canada, which was confronted with drought and crop failures throughout the 1930s.

Owing to the difficult financial positions of provinces during that period, the federal government appointed a Royal Commission on Dominion Provincial Relations in 1937, referred to as the Rowell-Sirois Commission, to examine the economic and fiscal basis for Confederation and the distribution of legislative powers. It recommended a shift in taxing powers, as well as the national government’s assuming full control over personal and corporate income taxation in Canada in exchange for provincial compensation. This led in 1942 to the federal Wartime Tax Agreement Act, which provided the federal government with unrestricted access to personal and corporate income taxation to finance the war effort and manage the wartime economy. The federal government also introduced federal succession duties, a gasoline tax, and user fees. In exchange, provinces received financial compensation from the federal government. For Saskatchewan, compensation came in the form of the federal government assuming the province’s net debt charges less any revenue collected from succession duties. Once assuming full control over income tax, the federal government rapidly increased tax rates and expanded the income tax base by lowering personal exemptions.

Following World War II, the federal government retained exclusive control over income taxation and lowered income taxation levels. In 1947, Saskatchewan entered with the federal government into a five-year Tax Rental Agreement that extended federal control over the application of income taxes, in exchange for a guaranteed annual payment based on a per capita amount. That year also witnessed the federal government withdrawing from the taxation of gasoline (introduced as a war measure), permitting provinces to increase their reliance on this revenue source as a means of financing highway development. The Tax Rental Agreements formed the basis for the administration of the personal and corporate income taxation until 1962, when the federal government entered with all provinces except Quebec into Tax Collection Agreements that permitted provincial flexibility to levy income taxes based on a percentage of the federal tax assessed.

During the years following World War II the tax system was relatively stable, but provincial tax rates increased to keep pace with the public’s demand for provincial services, including an increase in the province’s sales tax to 3% in 1950 (this tax was also renamed the Education and Hospitalization Tax). During this period, Saskatchewan also witnessed strong growth in provincial revenues resulting from the development of its natural resources, although international market forces created considerable revenue volatility for the province. The introduction of Saskatchewan’s Medicare reform in 1962 required a significant increase in provincial revenues. The provincial sales tax was increased to 5% (also renamed the Education and Health Tax), although additional exemptions were introduced, bearing on reading materials, medical supplies, and farm-based exemptions. As part of this initiative, the province also increased personal and corporate income taxes and introduced annual health premiums (later abolished in 1974).

Strong revenue growth during the period 1965 to 1971 permitted a reduction in provincial taxes. The Education and Health Tax was reduced 4% in 1965 (the tax rate returned to 5% in 1968), while the following year saw the personal income tax surtax reduced, “nuisance” levies eliminated, tax-free marked gasoline permitted for farm trucks, and Home Owner Grants (later renamed Property Improvement Grants) introduced. The province also introduced the Tobacco Tax in 1965 (the tax would increase rapidly in the late 1970s and 1980s). During the late 1970s, an important consideration was the significant rise in the price of energy: provincial royalties and taxes began to increase significantly, and in response the federal government introduced the National Energy Program. It signed controversial five-year agreements with the energy- producing provinces with respect to energy pricing, taxation and incentives to protect Canadian energy consumers and redistribute the net proceeds from high international prices to the benefit of all Canadians.

The 1970s also saw a shift in tax distribution toward income-based levies for individuals, and higher corporate taxes. Provincial personal income tax rates increased from about one-third of federal tax to over one-half by 1980, although part of that increase was linked to a shift in tax room from the federal government to the provinces as a means to fund health care and social spending. Property Improvement Grants were increased significantly for homeowners, businesses and farmers to reduce the effect of local property taxes. The general Corporation Income Tax rate was increased, while the Corporation Capital Tax was introduced in 1980. Provincial tax rates increased in the 1980s to address budgetary deficits. The Corporation Income Tax rate was increased to its current rate of 17% by 1986, although lower tax rates were applied to small businesses and the value-added sector. The Corporation Capital Tax was also increased and expanded to apply to resource production. Personal taxes also increased during that time, with the exception of the Fuel Tax, which was eliminated for a brief period between 1982 and 1987. Of particular note was Saskatchewan’s introduction in 1985 of Canada’s first provincial Flat Tax, which resulted in a significant revenue increase. Property Improvement Grants were also eliminated in 1985. The Education and Health Tax was increased to 7% in 1987. These changes reversed the impact of the earlier shift to greater reliance on progressive taxation, and created very high personal and business taxation levels.

Tax levels became even higher in the early 1990s to address large provincial budgetary deficits. Revenue increases occurred in the Corporation Capital Tax, the Fuel Tax, and the Education and Health Tax (the tax rate went as high as 9%). A new Deficit Reduction Surtax was introduced, which effectively increased personal income tax levels by 10% in 1992. Balancing the provincial budget in 1994–95 permitted a return to more competitive tax levels, beginning with the introduction of targeted personal and business tax reductions. General tax reductions began in 1997 with reductions in the Education and Health Tax, the personal income tax rate, and the small business income tax rate.

In 1999, the province’s Personal Income Tax Review Committee examined the fairness and competitiveness of the personal tax system. It recommended significant reforms that lowered personal taxation levels by eliminating the Flat Tax, Deficit Reduction Surtax and High Income Surtax; and it shifted reliance from income to consumption taxation by broadening the sales tax base to achieve lower marginal income tax rates. As part of its reforms, Saskatchewan increased family-based tax credits to improve tax fairness, and introduced a universal child tax credit that is unique in Canada. These reforms were fully implemented by 2003. The challenge of raising adequate revenue to support key public services, including health and education, continues as Saskatchewan approaches its centenary: this is illustrated by an increase in the provincial sales tax rate to 7% in 2004.

Kirk McGregor

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provided by Western Economic Diversification Canada and the Government of Saskatchewan.
University of Regina Government of Canada Government of Saskatchewan Canadian Plains Research Center
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Diversification de l'économie de l'Ouest Canada et le gouvernement de la Saskatchewan.