Yesterday I presented to a small but engaged group of retired University of Alberta emeritus professors. My talk was provocatively entitled “Alberta’s Crumbling Economic and Fiscal Foundation.”
Key points emphasized in the presentation include:
- Volatility in price of oil over past 6o years and its impact on provincial finances
- Over past 40 years Non-renewable resource revenue represents a high of nearly 50 per cent of own source revenue (excludes federal transfers) to lows of just under 10 per cent recently.
- Based on Canadian Association of Petroleum Producers data since 1947, Alberta collected royalties equivalent to about 10 per cent of the total value of production over this 70-year span.
- In the early 1980s, Albertans were receiving about one-third of the rent from their resource ownership. This percentage fell steadily during the 1980s with lower oil prices, recovered somewhat by the end of the millenium, then steadily dropped over the pst 20 years partly as a result of the favourable oilsands royalty regime negotiated with Ottawa in the late 1990s. .
- Since 1965, the Alberta government would have had deficits in all years excluding royalty payments.
- Decisions in 1982 and 1986 to limit contributions of resource revenue to the Heritage Fund and to remove all investment earnings to direct for government spending problems has had a very long-term negative effect on the Alberta’s government’s fiscal sustainability.
- If all earnings had been reinvested the Heritage Fund would be worth about $260 billion. That does not include taking 15 or 30 per cent of royalties and adding to the Fund.
- Very poor investments in the past decade have parallels to many poor government investments in the 1980s and early 1990s.
- Recent examples of questionable investments include Keystone XL, the Redwater Refinery Partnership, the Alberta Growth Mandate and the Oil-by-rail contracts.
- Yesterday the Auditor General reported on significant accounting errors in the Energy department.
- Signs of hope include: Alberta’s young educated population; huge opportunities for renewable energy ; agricultural diversification and processing; relatively open society; and sales tax.
There was considerable discussion about Alberta’s relatively poor performance in high school graduation rates. Many of Alberta’s highly educated population come from outside the province.
There was discussion about the potential use of modular nuclear energy and fusion power.
In addition, there was a spirited discussion about the prospect of a sales tax and whether this might solve Alberta’s fiscal plight. Not a panacea, but a good step forward if politicians get onside.
To scroll through presentation place your cursor over the bottom leg corner.
Alberta - Economy and Provincial FinancesProfessors Emeritus
Thanks for opening up the discussion.
I do not believe the HSTF could have grown to $260B without significant pressure to share/raid from the Federal government (other Provinces), the public sector unions and the Alberta people (needs they think the government should fix). In time of need/want they would challenge Alberta to step up, solve the problem or be lambasted as the rich ogre not willing to share.
The monopolistic delivery of services through government programs has led to inefficient, ineffective and expensive service. This is not sustainable.
The mismanagement of temporary levels of elevated financial means (energy boom) has led to a bloated Alberta Government per capita expense relative to other Provinces simply because we could.
During the boom the whole economy shifts to what the new normal is and cannot retract backwards fast enough, because people have gotten used to and perceive the new normal as being normal.
Thanks Glenn. I think it would be difficult for Ottawa o resist finding a way to scrap back the additional rent that would be gushing in from the reinvestment. Obviously, we can’t know what the response would be. The politicians seeking re-election would consistently argue what’s the point of saving this rent if we won’t use it. Lougheed and successors could have built a quite large pool of bond holdings of the federal and provincial governments as a way of re-cycling back to the country.
I share some of your concerns about delivery of services and the inefficient use of public funds. However as I not on the second to last slide, corporate welfare is a huge part of the spending problem.
I think the debate on a sales tax for Alberta can only pass if a majority of the population think in order to maintain services, the only possible way to do that is through the raising of taxes, including a sales tax.
Glenn van Dijken states that the Alberta government’s per capita expense is “bloated” (which I take to mean much larger) relative to that of other provinces. That claim deserves comment and the matter clarification because it is a widespread misconception promoted by the UCP government and those of similar inclination. In fact, Alberta’s per capita total expenditure is strikingly similar to the average of the other nine provinces. Using data from the Finances of the Nation website (https://financesofthenation.ca/) the inflation adjusted/real (2019 dollars) per capita total expenditures in Alberta from 2000 to 2019 averaged $11,553 while that in the other nine provinces averaged $11,569. That is, total spending in Alberta has been essentially equal to that in the other nine provinces. If one looks at program spending (i.e., total spending less debt service costs and a better measure of the services provided by governments), Alberta’s per capita expenditures over that 20 year period averaged $11,239 while the nine province average was $10,376; that is, Alberta’s program spending was 8.3 per cent greater than the average. The reason that program spending was greater while total spending was equal is that debt service costs were low in Alberta allowing dollars to be spent on services rather than on paying for debt. When claiming that Alberta’s spending is much greater than that of other provinces, the UCP claim is really that it is greater than that of the two lowest per capita spending provinces (BC and Ontario). Alberta’s spending is actually comparable to that of the other seven provinces. Even compared to BC and Ontario, spending relative to household incomes has been quite similar to that in BC and Ontario and substantially less than the spending of the other provinces (see McMillan’s short School of Public Policy paper at https://www.policyschool.ca/wp-content/uploads/2018/10/Fiscal-Trends-AB-Gov-Spending-McMillan.pdf). That is, as a share of household incomes, Alberta’s spending is similar to that of the low spending provinces of BC and Ontario. Further details can be provided upon request. Thus, it is misleading to claim that the Alberta government’s spending is/has been substantially greater than that of all other provinces (when it fact it is only considerably greater than than of BC and Ontario) and, even then, Alberta’s spending as a share of household incomes has been similar to that in BC and Ontario. Nonetheless, and especially as circumstances change, it is important to look at both expenditures and revenues.
Mel