Alberta can do better than a rainy-day fund
Today, the Alberta government will convene its second economic summit, focusing on what to do with the province’s non-renewable resource revenues. The answer to that question is simple: the province needs a more aggressive plan to save those revenues. The challenge is to convince Albertans of the need to do so.
Admittedly, the timing for reopening this discussion couldn’t be much worse. Alberta was already staring at a massive deficit in 2013, without even considering the bills for flood compensation and repair. On top of that, Alberta has enough recoverable oil in the ground to last for generations. What possible reason could there be to begin saving now?
There are, in fact, three good reasons. The first is risk. The presence of vast bitumen reserves is no guarantee that the oil will always be economical to extract. The second is that savings converts the one-time sale of our natural assets into a lasting benefit. The third is that it reduces the wild revenue fluctuations that make fiscal planning such a challenge in Alberta.
The problem is that these are not new arguments. Study after study has identified the need to mitigate risk, reduce rev- enue volatility and save for future generations. If those reasons were sufficiently compelling, we wouldn’t be discussing resource savings today.
What Albertans have been missing is an inspiring reason to save. The question we need to be asking is: What great thing can we do with our resource money if we set our minds and hearts to saving?
There is a world of possibilities. We could eliminate the provincial income tax. We could provide a guaranteed annual income to Albertans. We could build bullet trains, or become world leaders in cancer research or environmental technologies. Every Albertan could receive an annual dividend cheque like in Alaska. The best part is that, if prudently managed, these options are sustainable for generations.
The only option we should studiously avoid is to save for a so-called rainy day. That approach only invites never-ending arguments about when to open the umbrella.
The good news is that the Alberta government has already begun the process. As announced in Budget 2013, the government will siphon a percentage of royalty money right off the top before it enters general revenues.
However, this plan doesn’t save nearly enough. In 200506, the Alberta government received an all-time high of $14.3 billion in resource revenues. Had the current savings plan been in place, only $1.6 billion would have been set aside. To make meaningful progress on savings will require accelerating this plan.
The challenge, of course, is that saving more means making do with less today. Thanks to resource revenues, Albertans receive one dollar in government services for every 70 cents they pay in taxes. That will have to change. The provincial government will also face pressure to improve the effective and efficient delivery of public services.
The province’s debt-free status is testament to the fact that Albertans are willing to make sacrifices if they believe in the cause for which those sacrifices are being made. An inspirational goal is vital to the success of any resource revenue savings plan.
We need to begin these discussions immediately to ensure that the value of our resources lasts beyond the point when the last barrel of oil is sold. The legacy of that wealth should be more than a dim memory of more opulent times. It should be a sustainable and prosperous Alberta.