A Canadian Natural Resources pump jack in AlbertaTODD KOROL
Alberta has been urged to direct its rich energy royalties away from provincial coffers and toward a special investment fund to lessen the province's reliance on oil and gas and smooth out revenue volatility.
The plan, proposed by a blue-ribbon panel on Thursday, would lower Alberta's annual general revenue by about 30 per cent, assuming royalties stay at recent levels. The fund would not seek a commercial rate of return, but instead invest in projects tied to research, infrastructure and education. The panel proposed phasing in the changes over five to 10 years.
But the changes could force dramatic changes to Alberta's public services and how they are funded. For example, the panel, dubbed the Premier's Council for Economic Strategy and chaired by David Emerson, issued a stern warning that service cuts might be needed to make up the revenue shortcoming.
Alberta is too reliant on the variable revenue from non-renewable resources - which have contributed 19 to 42 per cent of the province's revenue since 2000, the panel said, noting this budget strategy is dangerous.
"If funds from the sale of non-renewable energy assets are removed from the [general revenue fund] this will force all of us to face up to the reality that every public service comes at a cost and that current expenditures should be financed by current revenue," the panel's report said. "If we decide as a society that low taxes are paramount, we must also decide what services we want to reduce, give up or learn how to deliver more cost-effectively.
"If we choose to put our priority on high levels of service, we must be prepared to increase revenues through one or more … various tax options or through user fees."
Alberta prides itself on being the only province without a sales tax, but Mr. Emerson told reporters that implementation of the proposed new fund does not mean a consumption tax is inevitable.
The panel singled out health care as the most "obvious and critical" area where expenditures and revenue must be aligned. If Alberta's health-care spending - about $4,295 per person in 2010-2011 - was reduced to mirror the Canadian average of about $3,663 per person, the government would save about $2.4-billion each year, said the 12-member council, which included David Dodge, the former governor of the Bank of Canada.
The mandate of the proposed "Shaping the Future Fund" would be to broaden Alberta's economic base and create conditions that would help this effort.
Money could be used to help achieve educational parity for Aboriginal youth; build water infrastructure; lure or keep companies in Alberta; form public-private partnerships to "advance a strategic priority," such as demonstration facilities tied to oil sands development; establish a "Global Centre for Energy"; and other one-off projects such as shifting to electronic health records, the panel suggested.
Any money not immediately used for these types of projects should be put in the hands of the arm's-length Alberta Investment Management Co., one of the country's largest institutional investors, the panel said.
Phil Verleger, a professor of management at the Haskayne School of Business at the University of Calgary, applauded the way the fund is designed to diversify the economy, but said directing some of the fund's cash toward intangible projects like a "Global Centre for Energy" is unlikely to please the electorate.
Further, while Alberta is a conservative province, citizens will still get concerned when services like health care come under the knife. Serious changes to these types of services will require debate, he said.
"Everyone wants government to cut expenditures, until they cut their expenditures," he said. And health care - which the panel highlighted - is an especially sensitive topic.
"It is a good way to get unelected," Mr. Verleger said.