Alberta
Fraser Institute says Albertans should get annual dividend to promote Heritage Fund
From the Fraser Institute
By Tegan Hill and Joel Emes
An Alberta Dividend: The Key to Growing the Heritage Fund
If the government of Alberta wants to build the Heritage Fund over the longer term, it should start paying dividends to Albertans, finds a new study published today by the Fraser Institute, an independent non-partisan Canadian think-tank.
“The Alberta government has promised to ‘re-build’ the Heritage Fund, but it will require a consistent commitment over the long term,” said Tegan Hill, director of Alberta Policy at the Fraser Institute and co-author of An Alberta Dividend: The Key to Growing the Heritage Fund.
In 1976, the province established the Alberta’s Heritage Savings Trust Fund to save a share of the province’s resource revenues to provide ongoing benefits to Albertans. Since its creation, however, resource revenue contributions have only been made in 11 of 48 years of the fund’s existence and just 3.9 per cent of total resource revenue has been deposited to the fund over its lifetime.
Learning from Alaska’s success with its resource revenue savings fund—the Alaska Permanent Fund—the study proposes that Alberta should introduce a dividend to provincial residents to create public buy-in that generates political pressure to adhere to fiscal rules around the Heritage Fund’s operation—such as consistent resource
revenue contributions and inflation-proofing of the fund’s principal—to ensure its growth over time.
For perspective, the Permanent Fund was started the same year as Alberta’s Heritage Fund but has grown to US$78.0 billion in 2022/23—or C$88.6 billion—compared to a balance of just C$19.0 billion in Alberta’s Heritage Fund.
Using two alternatives based on Alaska, which includes mandatory 25 per cent resource revenue contributions and consistent inflation proofing of the fund’s principal, the Heritage Fund has the potential to pay each Albertan a total of $571 to $1,108 in dividends over the next three years—equivalent to $2,284 to $4,430 per family of four.
Under these rules, the Heritage Fund would be worth between $35.8 billion and $38.7 billion by 2026/27, while paying out between $2.9 billion to $5.5 billion in dividends to Albertans.
“As demonstrated in Alaska, by giving citizens an ownership share in the state’s resource fund, they demand that sound rules regarding the governance of the fund be adhered to.” said Hill.
- The Smith government has promised to “re-build” the Heritage Fund so that eventually its earnings are significant enough to replace volatile resource revenue in the budget. While this is a worthy goal, it will require a long-term commitment.
- Building on work from Hill, Emes, and Clemens (2021), this bulletin uses Alaska’s success with its resource revenue savings fund—the Alaska Permanent Fund—to demonstrate how the Smith government can introduce new fiscal rules to ensure growth in the Heritage Fund with a focus on the annual dividend.
- As demonstrated in Alaska, by giving citizens ownership shares in the state resources, they recognize their vested interest and demand that the state maximizes returns from such resources. Put simply, by creating public buy-in, the dividend generates political pressure to enforce robust fiscal rules around the fund’s operation to ensure its growth.
- Using two illustrative models based on the Alaska Permanent Fund, which includes mandatory 25 percent resource revenue contributions and consistent inflation proofing of the fund’s principal, each Albertan could be paid an estimated $148 to $297 in dividends in 2024/25, equivalent to $594 to $1,187 per family of four. From 2024/25 to 2026/27, each Albertan could receive a total of $571 to $1,108 in dividends, equivalent to $2,284 to $4,430 per family of four.
- Under these rules, the Heritage Fund would be worth between $35.8 billion and $38.7 billion by 2026/27, while paying out between $2.9 billion to $5.5 billion in dividends to Albertans.
Authors:
From the Fraser Institute
By Tegan Hill
According to the recent mid-year update tabled Thursday, the Smith government projects a $4.6 billion surplus in 2024/25, up from the $2.9 billion surplus projected just a few months ago. Despite the good news, Premier Smith must reduce spending to avoid budget deficits.
The fiscal update projects resource revenue of $20.3 billion in 2024/25. Today’s relatively high—but very volatile—resource revenue (including oil and gas royalties) is helping finance today’s spending and maintain a balanced budget. But it will not last forever.
For perspective, in just the last decade the Alberta government’s annual resource revenue has been as low as $2.8 billion (2015/16) and as high as $25.2 billion (2022/23).
And while the resource revenue rollercoaster is currently in Alberta’s favor, Finance Minister Nate Horner acknowledges that “risks are on the rise” as oil prices have dropped considerably and forecasters are projecting downward pressure on prices—all of which impacts resource revenue.
In fact, the government’s own estimates show a $1 change in oil prices results in an estimated $630 million revenue swing. So while the Smith government plans to maintain a surplus in 2024/25, a small change in oil prices could quickly plunge Alberta back into deficit. Premier Smith has warned that her government may fall into a budget deficit this fiscal year.
This should come as no surprise. Alberta’s been on the resource revenue rollercoaster for decades. Successive governments have increased spending during the good times of high resource revenue, but failed to rein in spending when resource revenues fell.
Previous research has shown that, in Alberta, a $1 increase in resource revenue is associated with an estimated 56-cent increase in program spending the following fiscal year (on a per-person, inflation-adjusted basis). However, a decline in resource revenue is not similarly associated with a reduction in program spending. This pattern has led to historically high levels of government spending—and budget deficits—even in more recent years.
Consider this: If this fiscal year the Smith government received an average level of resource revenue (based on levels over the last 10 years), it would receive approximately $13,000 per Albertan. Yet the government plans to spend nearly $15,000 per Albertan this fiscal year (after adjusting for inflation). That’s a huge gap of roughly $2,000—and it means the government is continuing to take big risks with the provincial budget.
Of course, if the government falls back into deficit there are implications for everyday Albertans.
When the government runs a deficit, it accumulates debt, which Albertans must pay to service. In 2024/25, the government’s debt interest payments will cost each Albertan nearly $650. That’s largely because, despite running surpluses over the last few years, Albertans are still paying for debt accumulated during the most recent string of deficits from 2008/09 to 2020/21 (excluding 2014/15), which only ended when the government enjoyed an unexpected windfall in resource revenue in 2021/22.
According to Thursday’s mid-year fiscal update, Alberta’s finances continue to be at risk. To avoid deficits, the Smith government should meaningfully reduce spending so that it’s aligned with more reliable, stable levels of revenue.
Author:
Better, faster, more affordable auto insurance
Alberta’s government is introducing a new auto insurance system that will provide better and faster services to Albertans while reducing auto insurance premiums.
After hearing from more than 16,000 Albertans through an online survey about their priorities for auto insurance policies, Alberta’s government is introducing a new privately delivered, care-focused auto insurance system.
Right now, insurance in the province is not affordable or care focused. Despite high premiums, Albertans injured in collisions do not get the timely medical care and income support they need in a system that is complex to navigate. When fully implemented, Alberta’s new auto insurance system will deliver better and faster care for those involved in collisions, and Albertans will see cost savings up to $400 per year.
“Albertans have been clear they need an auto insurance system that provides better, faster care and is more affordable. When it’s implemented, our new privately delivered, care-centred insurance system will put the focus on Albertans’ recovery, providing more effective support and will deliver lower rates.”
“High auto insurance rates put strain on Albertans. By shifting to a system that offers improved benefits and support, we are providing better and faster care to Albertans, with lower costs.”
Albertans who suffer injuries due to a collision currently wait months for a simple claim to be resolved and can wait years for claims related to more serious and life-changing injuries to addressed. Additionally, the medical and financial benefits they receive often expire before they’re fully recovered.
Under the new system, Albertans who suffer catastrophic injuries will receive treatment and care for the rest of their lives. Those who sustain serious injuries will receive treatment until they are fully recovered. These changes mirror and build upon the Saskatchewan insurance model, where at-fault drivers can be sued for pain and suffering damages if they are convicted of a criminal offence, such as impaired driving or dangerous driving, or conviction of certain offenses under the Traffic Safety Act.
Work on this new auto insurance system will require legislation in the spring of 2025. In order to reconfigure auto insurance policies for 3.4 million Albertans, auto insurance companies need time to create and implement the new system. Alberta’s government expects the new system to be fully implemented by January 2027.
In the interim, starting in January 2025, the good driver rate cap will be adjusted to a 7.5% increase due to high legal costs, increasing vehicle damage repair costs and natural disaster costs. This protects good drivers from significant rate increases while ensuring that auto insurance providers remain financially viable in Alberta.
Albertans have been clear that they still want premiums to be based on risk. Bad drivers will continue to pay higher premiums than good drivers.
By providing significantly enhanced medical, rehabilitation and income support benefits, this system supports Albertans injured in collisions while reducing the impact of litigation costs on the amount that Albertans pay for their insurance.
“Keeping more money in Albertans’ pockets is one of the best ways to address the rising cost of living. This shift to a care-first automobile insurance system will do just that by helping lower premiums for people across the province.”
Quick facts
- Alberta’s government commissioned two auto insurance reports, which showed that legal fees and litigation costs tied to the province’s current system significantly increase premiums.
- A 2023 report by MNP shows
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