CALGARY — Alberta's aging oil patch is forcing the province to take a fresh look at how to save for the future.
A commission struck to study the energy-rich province's savings strategy recommended yesterday that Alberta bulk up its Heritage Savings Trust Fund to safeguard its standard of living as revenues from the oil patch decline.
The Alberta Financial Investment Planning and Advisory Commission said in its report that Alberta needs to boost the size of the fund to$100-billion by 2030, compared to just $15.8-billion now.
Oil-rich Alberta has long been criticized for not saving more of its energy income in the Heritage fund, which was created in 1976.
The province's nest egg is often compared unfavourably with that of Norway, which saves 96 per cent of all its petroleum revenues and invests the money outside of the country. As a result, Norway's savings fund has grown to more than $350-billion since its inception in 1991.
Indeed, in June, the Organization for Economic Co-operation and Development said Canada should adopt Norway's model for managing oil wealth and recommended that Alberta invest and save its energy income,rather than lowering taxes.
“To preserve today's prosperity and pass on the benefits to current and future generations of Albertans, we urge [the government] to make savings the new fiscal anchor for Alberta,” the commission said.
Without this “new era of savings,” the report warned, Alberta could face provincial tax hikes of 40 per cent by 2030 as revenue from the energy industry declines.
Jack Mintz, professor at the University of Calgary and chairman of the commission, said that while he does not expect all of the recommendations to go through, he hopes the report “will have a significant impact in terms of developing a coherent and stable savings strategy [for Alberta]. … I'm 100 per cent happy with what this report might accomplish.”
The report recommended the province set aside a fixed share of its revenues, as well as at least 75 per cent of any year-end budget surplus, to boost the balance of the fund.
The report also said other Alberta government savings funds should be consolidated into the Heritage fund to increase transparency.
It did not make recommendations on exactly how much cash should be set aside each year, leaving that decision to policy makers.
Iris Evans, Alberta's Minister of Finance and Enterprise, told reporters that the government will consider the recommendations, and that “several, and maybe more or most,” of them would likely be adopted, without going into specifics.
While the report was released yesterday, it was actually completed in December, 2007. Ms. Evans denied suggestions that the government had restricted its publication, saying Alberta's election in March was in part the cause of the delay.
The report doesn't fundamentally restructure Alberta's savings plan,but does set more clearly defined targets and rules for the province to follow, said Michael Percy, dean of the University of Alberta School of Business.
“It's cogent and pragmatic, while still leaving some of the key decisions up to elected officials,” he said. “It's also very timely –clearly, we will have a problem [because of] the decline in resource revenues.”
The potential benefits of increasing the size of the fund to$100-billion should also end any suggestions that Alberta should payout its oil and gas wealth directly to residents, Mr. Percy said.
In late 2005, former Premier Ralph Klein, in a controversial move, gave every Albertan a one-off payment of $400 in the so-called “Ralph bucks”plan, which was derided by many economists as evidence of a lack of long-term financial planning.