In quiet Zoom meetings of economists and energy analysts around the province, you can almost hear the murmurs: “Fiscal insanity … again!”
But there is hope, however faint, because the imperative could not be more clear that Alberta must plan for a long-term recovery through savings, reinvesting in basic public services, and an urgent and methodical transition to a sustainable economy.
The fact that $70-a-barrel oil seemed a perfectly reasonable projection when the United Conservative Party government began putting its budget together just two months ago highlights just how reckless it is to build the province’s entire fiscal plan on such a volatile revenue source. That we continue to take this approach to budgeting year after year is the height of insanity. And it’s intensely frustrating that Albertans continue to ride this stomach-churning revenue rollercoaster over and over again.
While the UCP government is patting itself on the back for its “balanced” budget — one that continues to underfund public services, privatize health and education, and cut billions from our cities and towns — the fact that we don’t a have a plan for reinvestment in our services, a blueprint for savings, or a transition to a sustainable economy makes this budget and the government’s entire fiscal narrative deeply misleading.
The day the UCP introduced their budget, oil was trading at $93 a barrel. Within a couple of weeks it was at $125. When the budget was being planned in January, the UCP government set $70 as its projected price. There is simply no way to responsibly budget on such a highly variable stream of revenue.
Although international oil prices are just one factor impacting resource revenues, they are an important factor. Every dollar that oil goes up means as much as $500 million in increased revenue for the province.
Well-known University of Calgary economist Trevor Tombe notes that an increase of $15/bbl above budget projections would mean an additional $5.8 billion in the provincial coffers just this year. An oil price average of $85/bbl is not out of the question given the volatility in the market and in the world’s oil producing regions.
The very real likelihood of billions more in revenue after a pandemic and years of a struggling economy provides an urgent opportunity for the Alberta government to reset its fiscal planning and launch a strategy to create a just recovery and long-term fiscal stability for all Albertans in every corner of the province.
In 1976, the Alberta government recognized the short-term nature of non-renewable resource value and that “revenue from the sale of those resources will ultimately decline.” Accordingly, the Alberta Heritage Savings Trust Act required 30 per cent of revenue be set aside for “the benefit of people in Alberta for future years.” In 1983, that law was amended to reduce the amount to 15 per cent. Soon after that, in 1987, investments were suspended indefinitely until the mid-2000s, when a short-lived energy price boom led to sporadic investment into the Heritage Fund.
The short-sighted political urge to shore up revenue for spending with non-renewable resource revenue, rather than build a stable and predictable revenue stream, led to the quick demise of the fund’s original fiscal structure. As one friendly economist reminded me recently, this has been a cross-partisan effort, not a partisan one.
Oh, but what could have been. In 2008, during the heady thinking brought on by another boom, the Parkland Institute’s report Saving for the Future showed that with prudent savings, improved budgeting and proper taxation, Alberta could easily build the fund to $200 billion in just a decade.
Today? Well, the last quarterly report ending December 2021 puts the fund at $18.6 billion — a far cry from what economists and analysts from across the political spectrum thought was possible during the last big boom in 2007–2008. But at that time, at least the province was turning its head toward the possibilities of returning our thinking to the original intent of the fund.
This could be our last chance to imagine a future supported by savings accumulated from this non-renewable resource. The crucial first step today is for progressive-minded advocates, economists and Albertans to call for immediate reinvestment in basic public services. At a time when inflation, energy prices and massive instability in international trade and relations are causing anxiety and uncertainty for regular Albertans, we need to get the fundamentals right. This means reversing the UCP’s agenda of cuts and privatization.
From there, we need to stop promising not to fritter away this energy boom, and actually stop doing just that!
We must act like the owners we always say we are. This requires massive reinvestment in innovation, transition and long-term fiscal stability. For the sake of our quality of life, our province and the world, this time we simply have to get it right. ❚
Bradley Lafortune is the executive director of Public Interest Alberta.