Heritage Fund performance is pathetic

Living in Alberta from the end of the Lougheed era to the rise of Redford, I have been subjected to an ideological buffet on the topic of the Alberta Heritage Fund. The Lougheed concept was classic common good pragmatism: clip annual tithes from provincial oil and gas resource royalties and invest them for the future.

Living in Alberta from the end of the Lougheed era to the rise of Redford, I have been subjected to an ideological buffet on the topic of the Alberta Heritage Fund. The Lougheed concept was classic common good pragmatism: clip annual tithes from provincial oil and gas resource royalties and invest them for the future.

Why? Because one day the resources will be completely produced, and like in the Klondike, the miners will return home, leaving Alberta to fend for itself.

Paying down the mortgage

In a post-resource exploitation landscape, Alberta will have to think long and hard about paying the mortgage, and retaining ownership of the provincial farm. Right now, if resource royalties were to completely dry up, the provincial treasury would be short $8.3 billion per year, on an annual operating budget of $29- billion (figs. courtesy Jeffrey Simpson, Globe and Mail: Feb. 10, 2012).

It is hard to see how that revenue stream will be replaced by a full-on return to the agricultural sector or tourism.

Who knows, perhaps throngs of global tourists will stream through the Edmonton airport on their way to view the reclaimed oil sands hillocks, the carefully tended buffalo paddocks, and the glittering lakes of effluent.

More to the point would be middle class jobs in manufacturing. However, those are precisely the kind of jobs that are decreasing in central Canada right now, as Mexican labour and efficiencies produce smaller cars and tools for a leaner North American market.

How Alberta will morph from bitumen production to I-Pad 33 producer in the next 30 years is hard for me to imagine. Doing so without a drastic recourse to deficit expenditure of Grecian proportions is even harder. Suddenly implementing a provincial sales tax, and hiking personal and corporate taxes in a recession (or worse) is also not a winning economic strategy.

And that is precisely why heritage funds make such good, common sense.

Norway’s Sovereign Wealth Fund, with over $500 billion invested, and the Alaska Permanent Fund with over $38 billion are great examples of getting it right.

As their oil and gas resources deplete, so do their funds grow. In this way, a depleting resource is replaced by a sustainable one — invested cash. The goal is to create sufficient annual draws to offset the loss of royalties in the annual national or state budget.

The Alaska Permanent Fund also spins off a dividend cheque for each resident of the state for the preceding year. In 2011, the dividend cheque was $1,174, and is based on a five-year average of the Permanent Fund’s performance.

The re-expenditure effect of these cheques in the Alaskan economy is significant, and accounts for over 5,000 indirect and induced jobs in the local economy.

As well as cutting annual dividends for citizens, the Alaska Permanent Fund also undertakes annual inflation proofing and pays for all of its operating expenses. Over its 30 years of operations, from 1982 to the present, the citizens have shown no enthusiasm for expenditures of fund income for anything else.

In the light of the Norwegian and Alaskan experience, the post-Lougheed-era record of Alberta Heritage Fund investment is pathetic.

It has become a political football, much discussed, often raided for cash, and today (as of September 2011) its value stands at $14.7 billion, or slightly less than two years worth of current royalty payments on Alberta’s resource bounty.

Premier Alison Redford’s 2012 budget makes no commitments, other than having a “conversation with Albertans,” to changing the status quo.

From a conservative ideological perspective it is possible to argue that Alberta is maximizing personal ‘family heritage funds,’ by under-taxing and deferring resource royalty streams to cover capital, operating and maintenance expenditures on the common goods supplied by government.

By allowing Albertans to make more money, they are giving citizens the duty of prudently saving for their own futures. My family and many others have benefitted from this policy.

But we have also made plans to retire outside of Alberta one day, and to take our money with us. The taxes levied in our retirement will benefit B.C. more than Alberta.

Our family heritage funds will feed private pleasures more than the common good. And that is precisely the problem with an ideology that favours individuals over the common needs of citizens.

The purpose of our democratic society must surely be to protect the commons, and those institutions the citizens deem necessary for the common good.

What does the future look like when the wells run dry and the bitumen rivers no longer flow?

Let us face the facts: Alberta’s future without resource royalties and without a Heritage Fund is bleak. A pragmatic government would take action now before the gold rush ends.

Troy Media columnist Mike Robinson has lived half of his life in Alberta and half in BC. In Calgary he worked for eight years in the oil patch, 14 in academia.

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