Alberta Dividends Could Restrain Government Spending

Alberta, Commentary, Local Government, Marco Navarro-Genie, Uncategorized

Pundits have been busy criticizing Wildrose's election plan for energy dividends as frivolous spending. Since Wildrose may come to form government after next week’s election, we should have a close look at it could mean to government spending.

Some say that the dividend money would be best spent by government building new schools and clinics, but the record does not warrant such supposition. For decades now, the Alberta government has lost its way on what to do with our vast resource revenue as the Financial Investment and Planning Advisory Commission hinted in 2007.

The state of the Alberta Heritage Savings Trust Fund, established in 1976 with an initial investment of $1.5 billion, provides an insight into the randomness of Alberta's fiscal policy. Successive premiers have ignored the Heritage Fund other than to raid it on occasion to pay for their spending addiction.

Premier Peter Lougheed wanted the fund to save for the future, diversify the economy and improve the quality of life of Albertans. Insofar as there is a mandate for the fund today, it has been narrowed simply to manage the scant savings from resource revenues, which currently stand at less than $15 billion. From $1.5 to $15 billion is not too bad, you might say. It has grown 10 times in nearly four decades.

The bad news is how much it could have grown. Alaska's fund to save its oil revenues, also created in 1976, is well over $40 billion today, whereas the Norwegian equivalent created in 1990 has now surpassed the $600-billion mark.

We have lacked discipline: when the Heritage Fund was created, Alberta resolved to save 30 per cent of non-renewable resource revenues in it. That was cut by half in the early 1980s with declining resource prices and rising public expenditures, and government started raiding the income earned by the fund's investments, over $27 billion by now. In 1987, we simply stopped saving, and by the mid-1990s, when things improved, the target was to eliminate deficits and pay down debt instead of putting money away. Alberta is now on its fifth consecutive budget deficit. This year's is short nearly $1 billion, even though we received over $11 billion in resource revenue.

Some say it is immoral for present generations to spend the natural wealth of the province, leaving little or nothing to following generations.

Instructively, Norwegians are debating the reverse.

They question the ethics of saving it all for future generations, saddling themselves with high taxation burdens, and not allowing themselves to enjoy today the fruits of their work and their sound management of resources.

Many have called on Alberta to follow Norway's example. But Alberta is not Norway. While Norway's fund is at arm's length from politicians, it's also out of the hands of the Norwegian public. It means that politicians cannot raid it, an appealing proposition to Albertans. But Albertans would find it undemocratic if unelected civil servants had full control.

Albertans may tolerate some paternalism from government, knowing they can change a crop of politicians if not the party that rules them, but not from bureaucrats. Albertans would also not accept a tax burden like Norway's, considering it excessive. The Norwegian model could not work in Alberta.

Our problem is even worse than simply spending what we have. Since 1999-2000, Alberta's revenues have doubled while our spending has tripled. We have now reached a new spending record with a provincial budget in excess of $40 billion – one-third larger in less than a decade.

While Wildrose's energy dividend plan is not ideal, it may bring some sanity to the resource revenue spending table. Their plan allows for 50 per cent of surplus to be saved, 20 per cent to be placed in a separate fund for dividend distribution once it reaches 750 million, and allocates 10 per cent for municipal infrastructure development.

It would bring needed structure to capricious spending. While it does not go Norwegian on us, forcing it all to go into savings, it will keep us from spending it all.

Allowing individual Albertans directly to spend 20 per cent of surpluses may have a healthy effect on spending. Albertans might in time come to demand these dividends, and given that dividend payments would only come from surpluses to government spending, the demand for such dividends would push governments to save. As a result, dividend demand would act as a check on unlimited government spending.

If spending 20 per cent of savings makes the Alberta electorate more sensitive to government spending, it may be a fee worth paying to restrain the government's spending habits.