For nearly eight years, Alberta wallowed in an oil recession that devastated broad swaths of its economy.
A province that was once completely in the black, was staring at debt numbers totalling more than $100-billion. The pandemic made things even worse. Things were so bad, in fact, that idea of bringing in a sales tax to bolster provincial revenues seemed like a fiscal measure whose time had finally come.
More than anything, the recession once again drove home how poorly the province has managed its oil and gas wealth over the years. Successive governments turned their back on the idea of getting off the royalty revenue roller coaster and financing budgets with dependable sources of funding – like those derived from an array of taxes.
But no, the billions that bitumen royalties were delivering were too tempting for governments focused more on spending and keeping voters happy than saving for those inevitable stretches when their oil riches dried up.
The budget that Premier Jason Kenney’s United Conservative Party government delivered in February was a shock. As late as November of last year, the government was forecasting a deficit for the 2022-23 fiscal year in the billions. Instead, the budget that was unveiled estimated there would be a $511-million surplus, followed by additional ones of $932- and $701-million in the two fiscal cycles that followed.
Almost certainly, those surplus estimates will be low, as oil prices, at least for now, far exceed the per-dollar barrel number that the budget is based on. That difference could amount to billions more in revenue. The province’s debt is estimated to be $94.7-billion for 2022-23, which is $33.4-billion less than previously expected.
For a Premier currently fighting for his political life, this is all great news. Who wouldn’t want to be in his fiscal position, with bitumen royalties expected to hit $10.3-billion (likely a number to be far higher upon final accounting) in 2022-23?
While one can’t be anything but happy for a province that has had more than its fair share of misery over the last several years, there is also something a little depressing about what we see taking place. By that I mean a return to the same old bad habits that have hamstrung the province for decades, primarily among them the selfish decision to live for today instead of planning for tomorrow.
People like University of Calgary economist Trevor Tombe have been arguing for years that the province needs to stop the practice of relying on unpredictable revenue sources like oil and gas to underwrite operating spending and develop a more sustainable model – one that depends on a sales tax, for instance. He believes there is an appetite for change.
“The public recognition of the risks associated with relying on oil and gas revenues to fund operating budgets is much higher these days,” Mr. Tombe told me over coffee this week.
“With the recession and pandemic so close together – and given the extraordinary length of that recession – even with boatloads of money flowing in from oil royalties in the next few years I still think there is an appetite for looking at all this differently.”
What would that look like?
For Mr. Tombe that would look like revenue from non-renewable sources like oil and gas being moved to a separate account that was managed by a body arms-length from government. That fund would pay out, annually, a fixed amount of dollars, based on an interest rate of 3 to 4 per cent. (Which would still deliver a substantial amount of funding.) The rest would be invested so it could grow and be accessed by future generations. If this sounds familiar it’s because it already exists – in Norway. Its sovereign wealth fund should be a model for Alberta.
But it won’t be.
The current government has no interest in not being able to control and access every cent of oil and gas revenue that comes into the province. That’s how you get elected in Alberta it seems – by showering people with money. It’s largely how the former Progressive Conservative party stayed in power for 43 years.
Do you think Mr. Kenney is going to be the one who finally says: “Enough, we can’t continue to rob future generations by plundering all of our natural resource assets now.” No, not going to happen. Instead, the government will carry on like the last recession didn’t happen.
Boom times have returned to Alberta, for how long no one can predict. What we do know for certain is they will end one day, and if history is any predictor, in spectacular fashion.
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Gary Mason