Short-term pain for long-term gain is a losing idea in the real world of Canadian governments.
Remember prime minister Joe Clark’s politically ill-fated 1979 budget, which brought down his government. Faced with a burgeoning deficit, the Progressive Conservatives suggested an 18-cents-a-gallon tax on gasoline, hoping to induce energy savings and put money in the treasury. The PC proposal, captured by the slogan “short-term pain for long-term gain” turned into another spell in opposition after the 1980 election.
The question remains: Will Canadians sacrifice anything today for a more secure tomorrow? Generally, the answer is no.
Yet Peter MacKinnon, former president of the University of Saskatchewan, at the behest of his provincial government, has taken a deep breath and recommended that Saskatchewan begin planning far ahead, even if the plan produces modest inconveniences today. Good luck to him, and to his province.
Saskatchewan is the only Canadian province with a fiscal surplus. Money is flowing into the treasury from natural-resource rents. These revenues amount to 20 per cent of the provincial government’s total revenues. They explain that surplus.
Mr. MacKinnon, who knows his way around public policy and politics, understands that telling the government to put all of that money into a rainy-day fund and raise taxes instead is a non-starter. What he suggests instead is that the province cap natural resource revenues’ share of the provincial budget at 26 per cent. Anything more would go into a Saskatchewan Futures Fund, starting in 2014 and operating at arm’s-length from the government.
We have been here before, with decidedly mixed results. Saskatchewan itself, under a New Democratic government, established the Saskatchewan Heritage Fund in 1978 to collect all non-renewable resource revenues. It was launched with an initial payment of $465-million. Within a few years, NDP politicians began committing the fund’s money for Crown corporations and then siphoned money into general revenues. That ended the fine idea of saving for tomorrow. The Heritage Fund was abolished in 1992.
An equally sad example is provided by Alberta. The great premier Peter Lougheed created the Alberta Heritage Fund in 1976. It was to receive 30 per cent of all non-renewable resource revenues – plus an initial payment of $1.5-billion from general revenues.
Then the slippage began. The share of resource revenues dropped to 15 per cent, then was discontinued entirely in 1987. Of the $123-billion Alberta captured in non-renewable resource revenues from 1977 to 2005, just 8.6 per cent was saved. In those early Lougheed years, the fund accumulated about $12-billion. Today, 31/2 decades later, it has only $16.8-billion.
By way of contrast, Norway, with a population of five million people (compared to about four million for Alberta) began in 1990 to put all its petroleum revenues and interest into a fund that now boasts assets of about $740-billion. Every year, Norway’s fund pays out about the same amount (around $16-billion) as the total funds in Alberta’s Heritage Fund.
Instead of putting money into a long-term fund, Alberta eliminated its debt and created a contingency fund to guard against volatile resource revenues. Predictably, the provincial government drained that fund to help finance deficits. Alison Redford’s government made a modest commitment to start rebuilding the Heritage Fund in the 2013 budget; the province’s history suggests this commitment will falter over time against the twin pressures for more spending and maintaining the lowest tax rates in Canada.
Report after report has urged Alberta’s government to get serious about putting more money aside, but this would require higher taxes to cover the yearly budget gap if more resource revenues were put into a fund. The latest of these reports – published recently by the Canada West Foundation – compared Alberta’s blasted intentions to weight-loss programs: “Past efforts to save for the future have failed because the temptation to consume was too great.”
Now, along comes the MacKinnon recommendation for Saskatchewan, where the idea of saving through a fund has already been tried and spectacularly failed.
He is, of course, correct in theory that failing to save and invest some portion of today’s resource rents is unfair to tomorrow’s generation. Sadly, the Canadian record illustrates that this excellent theory eventually crashes against demands.