Forty years ago, Peter Loughheed had a great idea. Let’s take all the revenues from oil and gas and other resources and put it in a heritage fund. We can spend the interest but not the capital. In the meantime, Albertans would live within their means and pay for stuff on a yearly basis from tax revenues in the good times and deficits in the bad. Eventually the Heritage fund would be so big they would have no debt and government could lower taxes for everyone.
It was a great ‘seamless’ web of ideas. Too bad Albertan politicians hadn’t implemented them all and not just picked and chosen those they liked at the time. Of course, the politicians weren’t entirely to blame. Albertans — true to their largely American heritage (Alberta’s first and biggest wave of immigration was from Utah and Montana) — hate to pay taxes. They therefore have no sales tax and the lowest rate of income tax in the country. Well, the lowest rate for rich people anyway. The flat tax means that poor people in Alberta pay more in taxes than anywhere else in this great land.
Oh, and that Heritage fund? Never really got off the ground. $85 billion sounds like a lot but it’s less than $20,000 per Albertan. The temptation was just too big to spend all those royalty revenues as they came in. Added to that was the fact that royalty rates were too low in any case — Albertans leading the race to the bottom was the usual scenario.
Conservatives said it couldn’t be any other way. It was the Alberta advantage. Meanwhile in Norway, the government charged among the highest royalties in the world and stuck it in a savings account. Norwegians now have enough set aside for the future that every citizen is worth a million krone ($170,000). And will keep growing despite the current downturn. Now that’s an advantage.
But the chickens are coming home to roost. With the dramatic drop in oil prices, Alberta has gone from a tiny surplus to a massive deficit — one that it will take years to crawl out from under. The government will use it as an excuse to cut wages and public sector employment and claw back services from the public.
But just maybe, Jim Prentice — blessed with a divided and helpless opposition — will use a renewed majority to fix Alberta’s finances in the long term. The proponents of the “Free Lunch” party (that is, his own colleagues) may grumble but with massive debt hanging over their head, they may have to acquiesce.
The real question will be whether Jim takes that final step and raises royalties on oil and gas and sticks the proceeds into an untouchable reserve, making savings as sacrosanct as low taxes and no debt once were.
Now that would make for an Alberta advantage — because without it, once the oil is gone, Alberta will be as empty as Montana is now. Roll, tumbleweed, roll.
But that’s ten minutes.