“Stop mortgaging our future” has been a catch-phrase for several decades.
Usually, it has been directed by conservative fiscal hawks at the perceived excesses of the “tax and spend” liberal or social-democratic welfare state of the 1960s and 1970s. Yet in recent years, the worst culprits, in both the United States and Canada, have been on the right side of the political spectrum. And the worst of all may be right next door in the conservative paradise of Alberta.
The “Alberta advantage” has consisted largely of using most of its resource wealth to subsidize both lower taxation and higher spending on services than found elsewhere in the country.
Since the first full year of the Alberta Heritage Trust Fund (AHTF) in 1977, $216 billion in revenue accrued from non-renewable energy went into the fund; but of that amount less than 6% of it has actually been saved. The latest reported total for the AHTF is just $17.4 billion – little more in real terms than it was when Peter Lougheed left office in 1985.
In 2011, the Calgary Chamber of Commerce calculated that if Alberta had continued to save 37 per cent of resource revenue, as was the case under Peter Lougheed, the AHTF would be worth $128 billion. A reasonable rate of return on that amount of money annually could fully cover even the current “crisis” deficit of $7 billion.
The left-leaning Canadian Centre for Policy Alternatives and the right-leaning Fraser Institute have both published reports arguing that Alberta should be saving more of its non-renewable resource revenues. So has the Parkland Institute at the University of Alberta.
But governments over the past quarter-century have not listened.
Savings started to be reduced during the Don Getty government in 1987, after which resource revenue was no longer added to the Heritage Fund.
Ralph Klein did everything with oil revenue between 1992 and 2007 except use it to build savings: eliminating public debt, giving voters pre-election “Klein bucks” when revenues were high, and using the AHTF to pay for special projects for economic diversification (some of which took the form of loans to private companies that had to be forgiven); the elimination of sales taxes, the lowest corporate taxes in the country and the country’s only 10% flat income tax.
The contrast with other jurisdictions is striking: Alaska, for example, continued to deposit 25% of its royalties from 1982 to 2011, and Norway contributed 100%.
If Alberta had followed the Alaskan formula, by 2011 the AHTF would have had $42.4 billion instead of $9.1 billion. By the Norway rules, Alberta would have had $121.9 billion by 2011.
Now, the Alberta government has to scramble because of low oil prices. Premier Jim Prentice needs to show that he is another premier Lougheed and not another premier Klein. Future generations of Albertans are counting on it.
Mark Crawford teaches Government at Athabasca University.
