But you promised not to piss it away again

Alberta’s half-made half-missed economic opportunity

When the oil boom of the ’70s and early ’80s crashed around Albertans’ ears the scapegoats were ready. In demonizing former prime minister Pierre Trudeau and the National Energy Policy Albertans avoided reflecting on their role in the crash and painful recovery. There are no demons except greed to blame this time and Albertans have already started wondering if the boom-time riches were pissed away again.

For years right-wing left-wing and international think-tanks former premiers and business groups have nagged the Alberta government to save more. Additional savings would allow Albertans to enjoy the same infrastructure public services and business-friendly tax system the province has now — even when oil and gas royalties no longer make up one-third of government revenues. The province paid down its debt and created some short-term savings but it did not make any long-term plans. Alberta half-made and half-missed the opportunity presented by the past boom.

Litres of ink were spent in the last 15 years on why and how Alberta should pay down debt and invest in infrastructure and services for catch-up and growth. When it came to saving some of the oil-and-gas bonanza Albertans were consulted polled and given lots of advice but the time was never right for the provincial government to put money into the Heritage Savings Fund or other long-term investments. Today when times are tougher Albertans must only look in the mirror to discover who stopped the province from saving for a future without oil and gas to pay the way.

Dr. Geoffrey Hale a political scientist at the University of Lethbridge believes Alberta did not learn the lessons of the ’80s when the province budgeted for unrealistic natural gas and oil prices and was left with big year-end deficits even after spending all the Heritage Savings Fund earnings and oil and gas royalties. Alberta has continued to spend all the fund earnings and royalties even if as Hale says there was legitimate spending on re-building the programs and services cut during the deficit-fighting years and then on expanding services and infrastructure to accommodate population growth. This focus on short-term priorities had a downside. “As a result any strategic approach to financial planning was beyond the reach of the Klein government” says Hale. “Although Mr. Stelmach has tried to get a handle on the royalties there’s no evidence that the government has gotten these big-picture issues through its head.”

The Alberta government has created some short-term savings. The $7 billion Sustainability Fund will allow the province to continue its current spending for a few years. According to Dr. Hale’s government sources the Sustainability Fund was created in part to avoid building up savings in the Heritage Savings Fund. “The sharp spike in oil prices after 2000 really spooked the Alberta government” he says. “It was afraid that a large Heritage Savings Fund would attract the envy and the redistributive tendencies of the federal government.” In response Alberta allowed the Heritage Savings Fund to keep enough investment earnings to offset inflation but no more and set up the Capital Account and Sustainability Funds to deal with short-term ups and downs in gas and oil prices. Dr. Hale says “The result was a fiscal shell game with a series of contingency funds that would hopefully keep the rest of the country confused enough about what Alberta’s finances were.”

Such fears could also explain why the provincial government was reluctant to even acknowledge a report that it commissioned to determine if Alberta’s investment policies protect Albertans’ long-term interests. The Alberta Finance Investment and Planning Advisory Commission chaired by Jack Mintz submitted its Preserving Prosperity: Challenging Alberta to Save report in December 2007. When the Alberta government finally made the Mintz report public in November 2008 the province produced a generic promise to consider its recommendations in the light of changing economic conditions. The government did not even comment on the report’s recommendations that Alberta should save a fixed share of the province’s total revenues (not just oil and gas royalties) with a goal of saving $100 billion. Despite the lukewarm reception Alberta Finance says it is still committed to producing a long-term savings plan even though the 2009 budget will use short-term savings and run the first deficit in 15 years. With Alberta experiencing an oil and gas revenue crash as it did in 1986 and even Jack Mintz now saying this is not the time to save the province may produce a pennies-in-a-jar plan that saves face but not for the future.

The report also described the “obstacles to increased savings.” First Albertans facing financial challenges want the government to cut taxes or increase spending instead of saving revenue. Second politicians living from election to election will naturally forgo long-term vision for short-term gain. The two points are a classic chicken-and-egg question in government and politics. Are politicians responsible for leading when hard decisions need to be made? Or are they simply bound to follow the wishes of their citizens?

Other jurisdictions such as Alaska and Norway have managed to save by putting into law a commitment to save a portion of their oil and gas revenues each year. The Alberta government dismisses comparisons to Norway claiming its savings come at the cost of high taxes. Provincial ministers appear to ignore comparisons between the Heritage Savings Fund and Alaska’s Permanent Fund. In dismissing or ignoring comparisons the Alberta government evades the fact that any government can choose to save if it has the political will.

Dr. Ronald Kneebone a contributor to the Mintz commission says the Alberta Tories can make tough decisions when there is public support as Klein did in getting rid of deficits and debt. He feels this has not happened with savings because the government is not putting the issue forward in the right light. “I partly blame the government’s failure to make that choice clear and to offer that option to people that by saving now we can build up the Heritage Savings Fund to such an extent that we can live off a higher amount of investment income which has all sorts of benefits” he says. “I think if [the public] did understand that was a choice they might be more in favour of it.”

Albertans were asked in a government survey and a Canada West Foundation opinion poll if they feel government saving is a priority. It did not fare well compared to spending and tax cuts but then there has not been the urgency to save that there was in 1992-1993 when Lawrence Decore and Ralph Klein were competing to lead the province in fighting deficits.

The comparison to that time is appropriate according to Naheed Nenshi a Calgary business consultant because public voices have no effect on government unless they are accompanied by a true political threat. “When there is no opposition it doesn’t matter what Albertans are talking about. Government in this province has a remarkable ability to set the public agenda free of any external influences” says Nenshi.

If the Alberta government is failing to act on savings Albertans have to look at themselves. When the citizens demand that more money be put into the Heritage Savings Fund and back up those demands with potential consequences at election time the Alberta government will find the will to save.

Hamish MacAulay is a governance consultant for small organizations who spends everything he earns and plans to live off his children when he retires.

More on Alberta’s savings

• Latest government savings figures from the Sovereign Wealth Fund Institute www.swfinstitute.org:

Norwegian savings fund: $64808 per person

Alaska savings fund: $42836 per person

Alberta’s savings: $4289 per person

• Increase in Alberta government spending 1996 to 2008: 191 per cent

• Increase in population for those same years: 34 per cent

• The Preserving Prosperity report: www.finance.alberta.ca/fipac/fipac_final_report.pdf

• Canada West Foundation’s Investing Wisely project: www.cwf.ca/V2/cnt/project_investwisely.php