Alberta Premier Alison Redford’s promise to start saving more of the province’s oil and gas royalty revenues is encouraging. To complete the job, she’ll have to tackle Alberta’s proclivity for spending, and create safeguards so that governments are not tempted to use trust funds as slush funds.
There’s very little saving going on at the $15.1-billion Alberta Heritage Savings Trust Fund. Since 1987, it hasn’t received a stream of dedicated resource revenues. Since 1982, there’s been no ironclad requirement to reinvest in the fund. And there’s very little that’s sustainable about the Sustainability Fund, created in 2003; Alberta says its balance will fall to $2.3-billion by 2014, from $16.8-billion in 2010.
Why save? Market turmoil means the Heritage Fund can incur losses even before any cash has been paid out, as it did in 2003 and 2009, and is expected to again in the province’s next update.
And it’s hard for Alberta to make a transition to a more diversified economy when it has become so dependent on the largesse from the funds. A recent report for the province, “Shaping the Future,” tallied the impact: “Revenues from nonrenewable energy assets have ranged from 19 per cent to 42 per cent of total provincial government revenue since 2000.” In the meantime, government spending per person, after inflation, has risen by more than one-third.
A majority government has more or less carte blanche to use the Fund as it sees fit. Ms. Redford could build on the inflation protection built into the Heritage Fund in 2000 and bring in further reforms, such as reintroducing requirements to reinvest income and top up the fund with new resource revenues. And with that, she’ll need to tackle Alberta’s spending addiction, first by undertaking health-care reform.