Opinion

If we want to get off the royalty roller-coaster, we should cut every Albertan a cheque

"There’s something about Alberta’s culture. We cannot resist betting on the resource revenue roller-coaster every time. When the bets pay off, we want drinks for everyone at the bar. When we lose the bet, we still want a round of shots to ease the hangover."

You could call this the 'Alberta Disadvantage'

When the royalty roller-coaster goes up, money floods into the treasury and politicians promise more spending with lower taxes. When it comes down, the private sector is quick to cut spending but the provincial government is never so nimble. (Sue Ogrocki/Associated Press)

The "resource revenue roller-coaster." It's the bugaboo of public policy in Alberta.

Every year at budget time the province's economists fret about how to manage Alberta's finances given the provincial government's dependence on the unpredictable ups and downs of oil and gas revenues.

For decades now, this money has allowed Albertans to enjoy Canada's most generous government programs while paying Canada's lowest taxes. The core of the Alberta Advantage.

But because resource revenues are so volatile, they warp provincial government decisions. They also warp what people expect from their government when it comes to feast and famine spending.

There is, however, a better way. But it would require major structural change.

In order to create a stable funding structure, and (not incidentally) improve our provincial governance model, we could just hand oil and gas royalties over to individual Albertans. Cut them a cheque. And institute a situation where our government is forced to manage its budget through taxes. Something other provinces do.

This isn't a citizen money-grab. It's a way to set up preconditions for a better Alberta. And it's worked elsewhere.

Different party, same speech

When the royalty roller-coaster goes up, money floods into the treasury and politicians promise more spending with lower taxes. We get new hospitals, new schools, better roads. And everyone on the provincial payroll gets a bigger paycheque.

When it comes down, the private sector is quick to cut spending but the provincial government is never so nimble.

At the beginning of a downturn, politicians say they must spend more to "soften the blow." And so, they borrow. This happens every time there's a downturn, regardless of who is in power. The NDP's Rachel Notley made the same speeches when she took office as many, many Progressive Conservative premiers have made before her.

Surrounded by Calgary caucus members, Alberta Premier Rachel Notley announces Alberta's new royalty framework on Jan. 29, 2016. (Larry MacDougal/Canadian Press)

But all that borrowing eventually makes the bond markets antsy, which in turn makes borrowing more expensive. And then, it's time to rein in spending. Those hospitals, schools and roads, become targets. At least until the good times return.

You could call this the Alberta Disadvantage.

Yes, politicians promise to do better next time. But we never seem to do better. And this is untenable. It doesn't make for good governance. It doesn't even make financial sense.

With Alberta's next provincial election a year or two away, there's no way the NDP will tackle this problem in the 2018 or 2019 budget. The province is running a huge public deficit, borrowing money at a furious pace to keep the province spending. Notley is counting on increased oil and gas revenues to bring the budget closer to balance before she goes back to the polls.

But after the next election, without some new thinking, we'll be back on that roller-coaster.

We should be embarrassed

The provincial government collects a lot of money from Alberta's oil and gas riches. Most of it is in the form of royalties — the compensation that producers pay to the province for extracting resources that the province owns on behalf of all Albertans.

Every government that draws payments from finite natural resources faces the same two problems, everywhere in the world.

First, there's the problem that the finite resources might run out. The other is that resources prices bounce around.

The Heritage Trust fund was supposed to help solve both problems, and it has failed.

Socking away 30 per cent of resource revenues into a big bank account, so the thinking went, would cushion future generations against the shock of having to do without oil and gas revenues. It would also, not coincidentally, create a massive pool of money the provincial government could "invest" projects that would make Alberta viable after the oil ran out.

But we're not running out anytime soon.

The ingenuity and innovation of the petroleum sector keeps finding new ways to get at oil and gas deposits and turn them into valuable products. In the case of the oilsands, Alberta geniuses are modern day alchemists, turning low-value tar into valuable petroleum products.

Alberta geniuses are modern day alchemists, turning low-value tar into valuable petroleum products. (Andrey Rudakov/Bloomberg)

The Heritage Fund was supposed to be our "rainy day" fund — to protect us from market fluctuations, and enable smoother government spending. That hasn't happened.

Every effort to impose a "fiscal rule" — that 30 per cent of oil and gas revenues must be socked away — has failed.

Trusting provincial governments with so much money is, in the memorable words of P.J. O'Rourke, like giving whiskey and car keys to teenage boys.

You have to put money into the fund for there to be a "fund," and we should be embarrassed that we have proven again and again that we just can't commit to that kind of sober management. It's time to face facts: There's something about Alberta's culture. We cannot resist betting on the resource revenue roller-coaster every time. When the bets pay off, we want drinks for everyone at the bar. When we lose the bet, we still want a round of shots to ease the hangover.

Reading all the provincial promises to build up the Heritage Fund would be funny if it weren't so tragic.

The time to tackle this problem is when the economy bottoms out. Before things get better, and we, yet again, become complacent.

And this is where direct payments to Albertans come in.

We should pay people directly

Oil and gas revenues now account for less than 10 per cent of the provincial revenue.

Alberta has not been this free of our dependence on resource money in decades.

If we know the provincial government cannot be trusted with resource royalties, maybe that's the place to start our next plan.

Government has to collect resource royalties — there is no better way to get them in the door. But government doesn't have to keep that money. The resource belongs to the people of Alberta. Why not pay the people of Alberta directly for them?

As oil and gas revenues start to climb again, we could require the province to divide up the royalties among all Albertans. Write everyone a cheque and clean out the account. Let's get our government off the roller-coaster once and for all. Let's institute an Alberta Resource Rebate for everyone.

If the province can't hitch its spending to resource revenues, the government will have to pay for programs the way other provincial governments do — with taxes that look more like taxes in other provinces. A far more stable system, which allows for proper long-term planning in our province.

Yes, this would require other changes.

Finance Minister Joe Ceci is set to deliver the 2018-19 provincial budget on March 22. (CBC)

We might decide to have a higher income tax. We might decide to have a sales tax. We might be able to make do with the carbon tax Ottawa will be collecting — if Saskatchewan's court challenge to that policy fails. All these revenue sources are all more stable and predictable than oil and gas royalties. They spike up and down more gently. This kind of change is a can of worms. But one well worth opening if we are serious about change.

Some of these above options would require a provincial referendum, but there's every reason to expect Alberta voters would be better off if we got the Resource Rebate directly, and then paid other taxes to fund provincial services.

This, in turn, allows for expanded personal opportunities, other governmental restructuring opportunities.

For young Albertans, the province could pay the Resource Rebate into a savings account that becomes available when they turn age 18. The account could be redeemed to finance higher education, travel, or to start a business. If every high school student in the province graduated with a cushy savings account, the province might not need to fund universities and colleges the same way.

For older Albertans, the provincial and federal governments could expand the RRSP and TFSA programs, or create health savings accounts so we could save more for old age and health expenses that come with it. This could help us reform the hugely expensive Alberta Health System. Every Albertan could decide whether to spend the Resource Rebate, boosting the overall economy, or save for the future, depending on individual circumstances.

Lest you think this is all "pie in the sky" stuff....

The different future

The State of Alaska cuts cheques to all Alaskans from its Permanent Fund each year.

That fund is managed by the state. Some years those cheques are big and sometimes they're small, depending on the health of the state's resource revenues. Those cheques give every Alaskan a financial boost and they force the state to manage with more stable taxes.

There's something to be learned from their system, though we could go one better, and eliminate the managed fund altogether — just send our royalties directly to the people.

Yes this would be revolutionary. Yes there would be painful change and unintended consequences and unforeseen problems. But it's an idea worth debating.

After decades of bad financial decisions, the spectre of a continued cycle of budgetary pleasure and pain, the creation of unrealistic expectations and an inability to properly plan our future, we need profound change. We need to break the cycle.

It's time to end the roller-coaster ride.


Calgary: The Road Ahead is CBC Calgary's special focus on our city as we build the city we want — the city we need. It's the place for possibilities. A marketplace of ideas. So. Have an idea? Email us at: calgarytheroadahead@cbc.ca

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About the Author

Ian Brodie

Ian Brodie is a political scientist at the University of Calgary and was the chief of staff to former prime minister Stephen Harper. His next book, At the Centre of Government, will be published by McGill-Queen’s University Press in May.