The province of Alberta is once again flush with cash from oil and gas royalty revenues. Thanks to high crude prices, a projected deficit of $18.2-billion in the 2021-2022 budget has turned into a $3.9-billion surplus. And that’s just the beginning: Alberta will almost certainly rake in massive royalty revenues this year and beyond.
This turn in the province’s fortunes should be a wake-up call for Alberta’s politicians. For too long they have thrown away their province’s birthright by failing to invest it in the future. This could be their last chance to change their ways in the carbon age.
Blessed with a massive source of revenue no other province could hope for, Alberta politicians have for decades preferred to run deficits rather than raise taxes, while hoping for a jackpot from the casino that is the oil market to balance their books.
The Alberta Heritage Savings Trust Fund, created to put royalty revenues away for the future, has been so neglected that it is worth less today, at $20-billion, than it was when it launched in 1976-77, after population growth and inflation are accounted for.
The province’s deliberate fiscal choice has instead been to rely on oil and gas royalties in order to have the lowest income and corporate taxes in Canada, and to eschew a provincial sales tax – while also being one of the highest spending provinces on a per-capita basis.
This policy has left the province in dire straits when the price of oil has crashed, as it did in the 1980s, in the late 1990s, in 2001, in 2008, in 2015 and again in 2020, when the COVID-19 pandemic struck.
When those crashes came, politicians were more apt to attack government spending than to examine government revenues, and consequently brought in painful austerity measures. In his 2021-2022 budget, Premier Jason Kenney made cuts to postsecondary education and to the civil service.
Now Alberta has another shot at redemption. The province took in a record $16.1-billion in oil and gas royalty revenues in 2021-2022. The jackpot could be even larger this fiscal year, thanks to crude prices above US$100 a barrel brought about in part by the war in Ukraine, and to a timely shift in the province’s royalty regime.
Alberta gives a break on royalties to oil sands companies until their cumulative revenue exceeds cumulative costs, including capital investment. Thanks to rising crude prices, an unexpected number of major producers hit the “payout status” threshold in 2021. An analysis in The Globe and Mail found that, going forward, every $1 increase in the price of West Texas Intermediate crude will produce an additional $500-million in provincial royalty revenues, compared with $215-million eight years ago.
The province is going to cash in big time this year and beyond, even if the price of crude falls back to prewar levels. The fact the Trans Mountain pipeline expansion will come online by 2024 will only help matters.
The United Conservative Party government, set to elect a new leader to replace Mr. Kenney in October, will be under pressure to restore cuts made in previous budgets, and to hand out goodies in advance of the provincial election scheduled for May, 2023. The Opposition NDP will no doubt be pushing for the same, and more.
But that will amount to a repetition of the failures of the past. Alberta’s main problem isn’t its spending; its main problem is on the revenue side, thanks to politicians’ addiction to gambling on a volatile commodity.
With a huge windfall coming their way, this is the moment for them to face their demons, and to finally bring in a stable, sustainable and very common source of government revenues: a provincial sales tax.
This page has repeatedly called for Alberta to join the real world and bring in a sales tax, instead of counting on a roll of the dice to pay the bills. We’re not alone. The Business Council of Alberta has been saying the same thing since 2019, and pushed for it again in March.
Doing so would allow the province to invest more of the coming windfall in the Heritage Fund, building it up so that one day its dividends could become a significant source of annual revenue.
More importantly, it would finally free Albertans from the self-imposed and unnecessary cycle of bust and boom that has defined the past 50 years.
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