By Bradley Lafortune
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 West Texas Intermediate (WTI) benchmark crude 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 one 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, WTI was trading at $93/bbl. Last week it was at $125/bbl. And when the budget was being planned in January, the UCP government set $70/bbl 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 WTI 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. And an oil price average of $85/bbl is not out of the question given the volatility in the market and 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 Alberta Heritage Savings Trust 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 original fiscal structure of the fund. And, 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 the 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.
We must once again call on politicians to plot out what Alberta could do with our resource revenue. This could be our last chance to imagine a future supported by the value of this non-renewable resource.
We’ve seen this movie before. Every so often prices spike and our governments want to spend money like drunken sailors. When prices fall again, they panic and advocate destructive austerity.
Like Ralph Klein before him, Jason Kenney has gutted public services and made significant moves to privatize health and education. With the increased urgency of climate change mitigation and adaptation, as well as reduced services, makes the poignancy of this current moment feel different than 2007-2008.
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 piss 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 executive director of Public Interest Alberta, a non-profit, non-partisan, province-wide organization focused on education and advocacy on public interest issues and understanding the importance of public spaces, services and institutions in Albertans’ lives.