Alberta’s flushing its resource miracle down the drain

- From Friday's Globe and Mail
Last updated! Friday, Feb. 10, 2012 4:29AM EST

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The census confirmed what everyone knew: The population is growing faster in Western Canada than elsewhere. The issue for the fastest-growing provinces, Alberta and Saskatchewan, is what to do with the challenges of growth. Their populations are expanding, pure and simple, because of natural resources, notably oil (mostly from the tar sands), natural gas and potash.

There are long-term development issues swirling around the nature of their economies. Are they going to be classic rentier economies, extracting resources and shipping them? Or are they going to try to process more of the resources at home? Thus far, the answer has been the former.

With more people come demands for a necessary expansion of public services: schools, serviced land, police, roads and, of course, health. Outside Alberta, for example, people hear about right-wing politics, the populist Wildrose Alliance (quietly supported by many federal Conservative MPs), the perpetually governing Conservatives, low taxes, small government. The picture, so alluring to those who judge the province by rhetoric rather than reality, is somewhat out of focus because the gap between right-wing rhetoric and on-the-ground facts is large.

Alberta has very big government. Its ratio of civil servants to population is high, relative to elsewhere in Canada. Its public services are large and well-funded, again compared with everywhere else. Thursday’s budget didn’t touch those services, except to pour more money into them.

At the same time, Alberta keeps its taxes low: no sales tax, relatively lower personal and income taxes. How does it perform this enviable fiscal miracle: low taxes but high spending? It sure isn’t because of red-blooded right-wingers in the provincial government.

One line item in every Alberta budget shows how the miracle unfolds: non-renewable energy resources. Last year, Alberta took in $8.6-billion in personal income taxes, $3.6-billion in corporate income taxes, $3.8-billion in “other” revenue, $4.7-billion in federal transfers and $8.3-billion in resource revenues. In other words, oil and gas revenues (about half of which – $4.1-billion – came from tar sands oil) poured almost as much money into the Alberta treasury as personal income taxes. What provincial government wouldn’t love that?

Thursday’s budget projected a staggering $15.9-billion in non-renewable resource revenues, most of which will be spent. All Premier Alison Redford would say is that she plans a “conversation” with Albertans about reducing reliance on non-renewable revenue.

Decades ago, with the oil and gas industry beginning to boom, Alberta’s wisest postwar premier, Peter Lougheed, pondered this bonanza. Being a real conservative – that is, someone who wanted to conserve and preserve – Mr. Lougheed invited his fellow citizens to put some of their riches into a fund for tomorrow.

Thus was born the Heritage Fund, an idea brilliant in conception, flawed in execution. As of September, the Heritage Fund contained $14.7-billion. More than 35 years since inception, the fund has produced $32-billion in revenue for Albertans.

It sounds to the uninitiated like a mountain, but it’s actually a molehill. Had the Lougheed vision been implemented, the fund would contain at least $100-billion and now produce perhaps $5-billion a year. But successive Alberta governments – not real but faux conservatives – spent rather than saved, figuring, one presumes, that resource revenues would just keep pouring into the treasury. And most politicians, even of the ostensibly most conservative variety, really, really like to spend to get re-elected. (See Ronald Reagan, George W. Bush and Stephen Harper.)

These faux conservatives also accepted the mantra that the province should not have a sales tax, which, of course, meant even further reliance on those resource revenues to maintain munificent public services. And they apparently believed it useful for Alberta to have among the lowest royalty regimes in the world.

A blue-ribbon panel (made up of Albertans and non-Albertans) charged with examining Alberta’s future recommended an end to using resource revenues in this way. It urged putting the revenues into the Heritage Fund and raising taxes to finance more of today’s spending. An earlier report for the Canada West Foundation had suggested putting a third of resource revenues into the fund.

Predictably, these save-for-tomorrow ideas were rejected by previous Alberta governments, as they were again Thursday. Governing for the very long term, after all, is politically dangerous.

Published on Friday, Feb. 10, 2012 2:00AM EST

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