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Alberta

Alberta government should pay dividends to Albertans from Heritage Fund

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5 minute read

From the Fraser Institute

By Tegan Hill and Joel Emes

Despite promising in February to rebuild the Heritage Fund to help eliminate Alberta’s reliance on resource revenue, last month Alberta Premier Danielle Smith said she plans to use income from the fund to “assist in de-risking projects” in the oil and gas sector (in other words, projects that can’t secure financing from private lenders). Clearly, if Alberta has any hope of building up the Heritage Fund, it needs robust fiscal rules to help ensure governments responsibly grow the fund—and don’t raid it for other purposes.

The Lougheed government created Alberta’s Heritage Fund in 1976 to save a share of the province’s resource revenue for the future. Since its creation, however, governments have only contributed resource revenue in 11 out of 48 years of the fund’s existence, and just 3.9 per cent of total resource revenue has been deposited in the fund over its lifetime. Instead, governments have largely spent away onetime resource revenues, contributing to Alberta’s boom-and-bust cycle, rather than saving a share of resource revenue to turn it into a financial asset that can generate steady income over time.

While Premier Smith says she wants to build up the fund so its investment income (i.e. earnings) can eventually replace resource revenue in the budget, the fund’s earnings in 2023/24 are a projected $2.1 billion compared to a projected $19.4 billion in resource revenue. Obviously, Alberta needs a new approach to grow the fund. On this front, it can look to Alaska’s experience with its Permanent Fund, which was also created in 1976 but has grown much larger over time.

Unlike Alberta’s Heritage Fund, Alaska’s fund operates under robust fiscal rules. First, according to Alaska’s constitution, the state government must deposit at least 25 per cent of all mineral revenues into the fund each year. Alberta could introduce a similar constitutional rule.

In addition, a share of the Alaska fund’s earnings are set aside each year to ensure that the principal of the fund is not eroded through inflation. Alaska also prohibits use of the principal without approval by a referendum; the government may only spend the earnings of the fund (minus what’s needed to inflation-proof the principal).

And crucially, there’s the dividends—a topic that would surely pique the interest of many Albertans. In Alaska, the government pays a share of the fund’s earnings to Alaskan citizens via a dividend, which has helped support growth in the fund over the long term. By giving citizens an ownership share in the state’s resource fund, Alaskans recognize their vested interest and demand that the state maximize returns. Put simply, due to the annual dividend, Alaskans want the government to maintain the Permanent Fund’s health. And any government that tried to use the fund for irresponsible purposes would face the ire of Alaskan voters.

Which brings us back to Alberta. If the Smith government began contributing 25 per cent of resource revenue to the Heritage Fund and inflation-proofing the principal this year, it could pay each Albertan a dividend worth between $148 to $297 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. And as the fund grows, so would the dividends.

The Smith government has promised to rebuild the Heritage Fund, yet at the same time wants to use the fund’s earnings to “assist in de-risking” energy projects in the province. Without a mechanism to ensure growth of the fund, it will remain vulnerable to the whims of governments. Alberta should learn from Alaska’s success and start paying annual dividends to Albertans.

Before Post

After 15 years as a TV reporter with Global and CBC and as news director of RDTV in Red Deer, Duane set out on his own 2008 as a visual storyteller. During this period, he became fascinated with a burgeoning online world and how it could better serve local communities. This fascination led to Todayville, launched in 2016.

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Alberta

Alberta’s fiscal update projects budget surplus, but fiscal fortunes could quickly turn

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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.

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Alberta

Premier Smith says Auto Insurance reforms may still result in a publicly owned system

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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.”

Danielle Smith, Premier

“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.”

Nate Horner, President of Treasury Board and Minister of Finance

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.”

Nathan Neudorf, Minister of Affordability and Utilities

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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