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Alberta Premier Jim Prentice. THE CANADIAN PRESS/Darryl Dyck

DARRYL DYCK/THE CANADIAN PRESS

Richard Lustig has won the lottery seven times over the past two decades. The Florida resident may be the luckiest man alive. But he's got nothing on Canada's luckiest province. Alberta has been winning the grand prize, year after year, for decades. It has taken home the jackpot with such regularity that the Progressive Conservative government, to say nothing of voters, long ago began treating lottery winnings – a.k.a. oil royalties – as guaranteed.

As a result, almost none of Alberta's jackpots were saved or invested. Instead, all of the money was spent the minute it came in the door – and budgets were drawn up assuming that the province's winning streak would never end. That's why the luckiest and richest province in Canada now looks like such a sad sack.

"If you are fortunate enough to win a grand prize," Mr. Lustig said several years ago, "the first thing you should do is pay off all your bills, set up a future plan of investments and stuff to protect yourself for the rest of your life."

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Alberta did the opposite. It ran up the bills – conservative Alberta is a high-spending province – while shedding stable, non-oil revenues. Alberta has low income taxes, and no sales tax. In other provinces, high spending plus low taxes would have been arithmetically impossible. But not in Alberta. Until the bottom dropped out of oil prices, the roulette wheel kept landing on black.

Premier Jim Prentice has correctly described this approach to budgeting as "speculative." In a speech to the province this week, he said of oil revenues that "we should treat them as a legacy rather than becoming addicted to them as operational dollars." He's right.

On Thursday, as part of the 2015 budget, his government laid out a 10-year plan to gradually bring Alberta back to reality.

It may not seem like it now, but the long-term future is sunny. Alberta is still Canada's luckiest province. It sits on one of the world's largest deposits of oil. Barring global economic catastrophe, Alberta is going to be a perennial lottery winner, and for decades to come. It's just that for the foreseeable future, the jackpots will be much smaller than the province had grown used to.

The long-term plan from Mr. Prentice and Finance Minister Robin Campbell has two main principles.

Start budgeting more like other provinces. Bring spending more closely in line with non-oil revenues, and raise non-oil revenues through necessary, new taxes.

Treat oil revenues like the non-renewable resource they are. Instead of spending all of each year's windfall, the province will – eventually, starting in 2018 – save a growing share of it.

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In the short run, it means taxpayers will pay more and get less. In the long run – again, barring global economic catastrophe or the abandonment of oil as a fuel source – the new course is likely to mean the "Alberta advantage" will become greater than ever.

But first, the pain. Income taxes are going up for anyone making over $100,000, and a new health-care premium will hit those over $50,000. Taxes on gasoline, alcohol and cigarettes are rising.

Missing in action? The province should have introduced a sales tax and joined the national HST – though for obvious political reasons Mr. Prentice weeks ago signalled he would do no such thing. And the province, which ramped up public-sector spending so aggressively, is being hardly as enthusiastic in slowing it down.

As for the deficit, even at an expected $5-billion this year, it isn't a problem, at least not in the short term. There is no reason for an economic slowdown in private-sector investment and employment, caused by low oil prices, to be made worse by overly sharp cuts in government spending. There can be arguments about how quickly the Prentice government is moving toward budget balance, but with little debt and historically low borrowing costs, there's no reason it has to reach the destination immediately, in 2015.

The Prentice government says it will achieve budget balance in 2017-18. And that's when things get interesting. In three years, Alberta plans to start emulating Norway. The Scandinavian country has a population only a little larger than Alberta's, and lower oil production. Yet through diligent saving of oil royalties, it has built up a sovereign wealth fund worth more than $1-trillion. Alberta's piggy bank, the Heritage Savings Trust Fund, is worth just $17-billion. But if the Prentice government sticks to its pledge of saving more and spending less of its oil revenues, Alberta's fund will rapidly grow.

If the Prentice government follows through, more and more of Alberta's "speculative" oil revenues will be transformed into Heritage Fund investments, generating stable, certain, renewable annual revenues. And the more of its oil revenue Alberta saves, the greater will be the size of the nest egg, and the greater the income in coming decades and for future generations. In the long run, that will be the real Alberta advantage.

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