Alberta Premier Danielle Smith stated that growing the Heritage Fund will 'take political will over a long period of time.' Ms. Smith speaks with reporters before a meeting in Halifax, on July 15, 2024.Darren Calabrese/The Canadian Press
Tegan Hill is director of Alberta policy at the Fraser Institute.
Danielle Smith’s government recently shared its plan to build up Alberta’s Heritage Fund to $250-billion by 2050, to purportedly wean Alberta off the resource revenue roller coaster. Unfortunately, while it’s crucial to grow the province’s rainy day fund, the plan lacks robust rules to safeguard it and ensure its growth over the long term.
The Alberta government created the Heritage Fund in 1976 to save a share of the province’s resource revenue, including oil and gas, for the future. Since its creation, Alberta governments have routinely pulled income from the fund to supplement the government’s budget, including during periods of hard times such as oil crashes. However, they have deposited just 3.9 per cent of total resource revenue into the fund over its lifetime.
In other words: For decades, successive Alberta governments have missed a golden opportunity. By depositing a share of resource revenue into the Heritage Fund, the government can transform a one-time (and extremely volatile) revenue source into a financial asset that can generate more stable earnings over time. Eventually, annual earnings from the fund can be used to replace resource revenue in the budget. But for that to happen, the government must have a sustainable plan to grow the fund.
The Smith government’s plan, revealed last Wednesday, does not meet this standard. While the government plans to reinvest all investment returns generated by the Heritage Fund in the fund and invest a portion of any budget surpluses in the fund, these rules are based in “statutory” law that the government can easily and unilaterally change at any time. For the fund to reliably grow, its rules must be “constitutional,” which means they are more difficult to violate or eliminate.
Consider this. When the Alberta government created the Heritage Fund, it established a statutory rule that the government must deposit 30 per cent of resource revenue into the fund each year. That quickly fell to 15 per cent by 1982-83, and the government eliminated the rule entirely in 1986-87. Again, statutory rules can be changed or disregarded when they’re no longer convenient. Ms. Smith clearly recognizes this risk, stating that growing the Heritage Fund will “take political will over a long period of time.”
Now consider Alaska’s Permanent Fund, which the state government created the same year but is worth nearly US$80-billion (roughly $115-billion) compared to the Heritage Fund’s estimated $25-billion in 2024/25. Alaska’s fund operates under robust constitutional rules, and according to Alaska’s constitution, the state government must deposit at least 25 per cent of all mineral revenues into the fund each year.
If the Alberta government followed Alaska’s lead and sought to create constitutional rules for the Heritage Fund, the government would first present the rules to Albertans via referendum. Assuming the proposal passed, the government would then pass legislation recognizing the rules and present it to the federal House of Commons and Senate for recognition, resulting in a change (pertaining to Alberta) in the national Constitution. To reverse the rules or otherwise ignore their requirements would require an Alberta government to reverse each step in this process, starting with a new referendum. Clearly, constitutional rules would provide far more protection for the Heritage Fund than statutory rules.
The Smith government wants to grow the Heritage Fund, which is the right thing to do. But statutory rules have failed to grow the Heritage Fund thus far – and there’s no reason to expect a different outcome this time. Instead, Albertans need constitutional rules to ensure the Heritage Fund’s growth.