Windfall oil, gas revenues creating ‘fiscal illusion’
Question politicians on savings plans, says critic
Study after study has warned Alberta to wean itself off of volatile oil and gas revenues, but politicians have been swept up in an election campaign spending binge that doesn’t bode well for the province, says the director of the Public Institute for Economics.
Bob Ascah, who heads the institute based at the University of Alberta, says voters should be questioning all politicians about their savings plans because windfall oil and gas revenues have created “a fiscal illusion” the province can afford everything now being promised — and that’s not the reality.
“We’re seeing a competition among the parties to spend more money and tax less,” Ascah said. “I just don’t think those views are realistic in the long term.”
He noted that if Alberta did not create its so-called “rainy day” sustainability fund in 2003, and build it up to $14.9 billion by 2009 when the recession hit, the province would now be $10 billion in debt.
Some parties have already announced their savings plans, but most focus on the Heritage Savings Trust Fund created in 1976.
The NDP said this week its goal would be to grow the Heritage Fund to at least $100 billion by 2050. During the first week of the provincial election campaign, the Wildrose party pledged to bolster the Heritage Fund from its present value of $15 billion to more than $200 billion within two decades.
But what does that mean for the separate sustainability fund that has kept the province debt-free, despite five consecutive years of deficit budgets?
Wildrose Leader Danielle Smith said the party’s policy of balanced budgets and investing in the Heritage Fund would allow the party to eventually abolish the sustainability fund, though she wasn’t sure how long it would take.
“Our long-term strategy is to wean Alberta off its reliance on oil and gas revenues,” she said. “Slowly over time, we’re going to start seeing that our surpluses are getting larger and larger.”
Smith said once the province gets to the point it can fund all programs without having to dip into resource revenues at all, the sustainability fund won’t be needed.
The Alberta government forecasts its string of five deficits will end with a $952 million surplus in 2013-14, followed by a $5.2 billion surplus in 201415. Already there have been pledges to spend that surplus money on schools, tax credits and cash dividends.
Wildrose plans to divvy up budget surpluses with 50 per cent going to the Heritage Fund; 20 per cent to Alberta Energy Dividend, 10 per cent to Alberta municipalities and 20 per cent as yet unallocated.
Other parties warn Alberta will be treading on dangerous ground if it throws all of its eggs into the Heritage Trust Fund basket and discontinues the sustainability fund too early.
“I am very leery of the Wildrose plan because they are go- ing to keep royalties and taxes as low as possible so their only recourse to deal with budget shortfalls is going to be to cut services,” said NDP Leader Brian Mason.
“The fact that they are planning to discontinue the sustainability fund means they will become more subject to periodic cuts to health and education when the price of oil drops.”
The NDP plans to bring in $3 billion in extra revenue by raising taxes on the wealthy and corporations, and increasing energy royalties, but the party plans to continue to put an unspecified portion of any surplus into the sustainability fund, he said.
The idea for the sustainability account came from a Future Summit in February 2002, but Alberta Liberals pressed for the fund in the legislature and claim credit for it being created.
“It was a Liberal idea the PCS implemented and thank goodness, because it did get us through tough times when the economy collapsed,” said Liberal Leader Raj Sherman.
He said eliminating the sustainability fund would be a “reckless and irresponsible thing to do.”
The Progressive Conservatives had initially stated following the throne speech and budget that they wanted to review taxes and savings, including the Heritage Trust Fund, but not until after the election.
Tory campaign strategist Stephen Carter said the PCS plan to put 20 per cent of future surpluses into the sustainability fund — until it hits $10 billion — and the balance going into the Heritage Fund.
“Alberta has been through booms and it has been through busts and it has been through up and downs — and we want to make sure that when the next down comes, that we have enough money that we never have to touch the Heritage Savings Trust Fund,” he said.
“It’s the equivalent of having an RRSP and a savings account. You have your RRSP to pay for your retirement and . . . your savings account which you can dip into for unexpected emergencies.”