Hicks on Biz: Heritage Trust Fund will never be a leader BY GRAHAM HICKS, EDMONTON SUN FIRST POSTED: FRIDAY, DECEMBER 05, 2014
I’m throwing in the towel.
Yelling “uncle” at the top of my lungs.
I accept the inevitable.
Alberta will never have a Heritage Trust Fund (now at $17.5 billion) that will compare with the $885 billion Norway Oil Fund, or Alaska’s $50 billion Permanent Fund.
Because Albertans love our low taxes. We have low taxes because almost all our oil and gas wealth – the provincial government’s royalties - is poured into Alberta’s current budget, being spent as fast as it arrives.
Every time oil prices drop, national commentators start saying the Alberta Government should be like the Rest of Canada, i.e. bring in a provincial sales tax, increase provincial income taxes, reinstate health care premiums, etc.
I have always supported this idea, that we should accept a 2% provincial sales tax or higher provincial income taxes. In exchange, energy royalties would be diverted into the Heritage Fund so our giant piggy bank could quickly grow to Alaska’s $50 billion.
And if we had $50 billion in the Heritage Fund, it could deliver a steady, predictable $3 to $4 billion a year (from its investments) into Alberta’s general revenues, thus ending Alberta’s reliance on roller-coaster energy royalties.
I surrender! Ain’t going to happen!
I hereby acknowledge that if the Jim Prentice government, or, heaven help us, a Danielle Smith, Raj Sherman or Rachel Notley government raised taxes in this province … they’d all be booted out of power faster than the devil could twitch his tail.
Every politician remembers when Brian Mulroney and the federal Conservatives introduced the 9% GST in 1991, then went from a majority government to two seats in the 1993 election.
Albertans love low taxes. We still faintly resemble rugged individualists. Let me spend my money on what I want, not what they (governments) want.
We’re among the lowest, if not the lowest, taxed jurisdictions in North America. On the Economic Freedom Index, Alberta is the “most free” province/state.
“This is one of the last places you can get rich,” says Scotia McLeod’s Ron Hiebert. “Investors can keep 81% of their dividend income if they live in Alberta. Entrepreneurs and risk-takers can keep 80% of their capital gains. That’s better than almost anywhere else on the planet.”
And Albertans are not going to give that up.
So Jim Prentice is NOT going to raise taxes in Alberta.
What he will do, what he must do, is keep Alberta’s debt under control.
Since Ralph Klein wrestled the accumulated provincial debt down from $22.7 billion in 1994 to zero in 2005 – without raising taxes – we’ve been pretty good at debt control.
Because of Alison Redford’s weird accounting, at this point nobody quite knows what Alberta’s accumulated debt really is. Between capital borrowing and a very small ($700 million) operating deficit, our current accumulated debt is somewhere between $5 and $9 billion.
Compared to debt-wracked Ontario ($270 billion) and Quebec ($200 billion), we’re in good shape and we have more in savings - the long-term Heritage Fund’s $17.5 billion, and the short-term rainy day Contingency Fund of $4.7 billion – than we have in debt.
Keeping debt under control is simple.
In theory, you borrow in recessionary years to keep Albertans employed on public infrastructure projects, building new schools etc. Interest rates are low. Labour and materials are 10% to 15% cheaper.
In theory, you PAY IT BACK, quickly, in good years.
It’s the pay-it-back-quickly part that’s so iffy.
The Harper government is doing better than most at paying-it-back. The oil-rich state of Texas has no big savings fund, but balances its books year-to-year.
The Don Getty government ran up Alberta’s accumulated debt to $22.7 billion by 1994. Ralph Klein paid it all off by 2005.
During the golden years following the turn of the century, by 2010 Premier Ed Stelmach put aside $15 billion in his rainy-day piggy bank (the Sustainability Fund).
But by 2013 Redford had exhausted the Sustainability Fund AND gone somewhere between $5 to $9 billion in debt.
So, Mr. Prentice, if oil royalties drop as are now forecast, you may have to start borrowing again.
Will you have the kahunas to make sure that debt is paid back ASAP, once energy prices again move up?
Alberta’s savings and debt (Source: Government of Alberta: year-end fiscal reports, 2005 – 2014)
2004/05: $5 billion surplus; $10.5 billion in Heritage Fund; $3.5 billion in Sustainability Fund
2005/06: $8.7 billion surplus; $13.4 billion in Heritage Fund; $4.1 billion in Sustainability Fund
2006/07: $8.9 billion surplus; $15 billion in Heritage Fund; $7.7 billion in Sustainability Fund
2007/08: $2.4 billion surplus; $16.4 billion in Heritage Fund; $7.7 billion in Sustainability Fund
2008/09: $85 million deficit; $13.8 billion in Heritage Fund; $9.8 billion in Sustainability Fund
2009/10: $1 billion deficit; $13.8 billion in Heritage Fund; $15 billion in Sustainability Fund
2010/11: $3.4 billion deficit; $14.2 billion in Heritage Fund; $11.2 billion in Sustainability Fund
2011/12: $23 million deficit; $16.1 billion in Heritage Fund; $7.5 billion in Sustainability Fund
2012/13: $2.8 billion “operating” deficit (capital borrowing excluded from fiscal report); $16.8 billion in Heritage Fund; $3.3 billion in Sustainability Fund
2013/14: $700 million “operating” deficit (capital borrowing excluded from fiscal report); $17.5 billion in Heritage Fund; $4.7 billion in Contingency Fund (replacing the Sustainability Fund).