Sask. should set up a futures fund using share of natural resource revenues
Economic downturn is an excellent time to lay foundation for a stronger tomorrow
As counterintuitive as the notion might seem when Finance Minister Donna Harpauer is projecting a budget shortfall that could be as high $3.3 billion due to factors beyond the province's control, it's time for the Saskatchewan government to set up a futures fund using a share of natural resource revenues.
The suggestion is bound to irritate those who feel it's an irresponsible call in the midst of a double-whammy on Saskatchewan's economy—the devastating impacts of COVID-19 and oil prices that barely cover the cost of production.
Yet this disruption underlines the need for Saskatchewan to wean itself further from its reliance on non-renewable resources — these now account for 12 per cent of revenues, down from 21 per cent a decade ago — and live within our capacity to pay for the public services we consume.
As Saskatchewan emerges slowly from the economic ravages of the COVID-19 pandemic and as resource prices creep upward, Premier Scott Moe should take up the cause that his predecessor Brad Wall championed in 2013 when he tasked former University of Saskatchewan president Peter MacKinnon to recommend a futures fund model.
MacKinnon said the government should be allowed to spend all resource income totalling less than 26 per cent of public revenues, with any excess money going to a futures fund or debt repayment.
While he made allowances for global resource prices that can be a roller-coaster ride of ups and downs, his model should have contained a minimum annual contribution to the fund instead of leaving it to the whims of politicians.
Money for a futures fund a drop in the bucket
The reality is that when times are good, as they have been for much of the Saskatchewan Party's term in office, the government has other politically rewarding priorities such as infrastructure investments and program spending. When times are bad, there's never enough to save in a futures fund.
Although politicians such as former finance minister Kevin Doherty have claimed the government first should be paying down its "credit card debt," MacKinnon made a salient point about our collective obligation.
"Our non-renewable resource wealth is inherently time-limited, and with each barrel of oil or tonne of potash removed from the ground, our store of wealth is depleted," he wrote.
A futures fund is not meant to be a rainy day fund, or a reserve to be tapped for political expediency or used to finance otherwise unaffordable projects, he said.
"It is a permanent fund for saving a portion of the revenues from non-renewable resources to be invested for the benefit of future as well as present residents of our province for generations to come, hopefully forever."
With resource revenues projected to be $1.83 billion in the mid-year update, consider the impact of dedicating say two per cent or five per cent of this revenue — about $36 million or $90 million — to a futures fund. This sum of money flowing to the futures fund would amount to a drop in the bucket of a $15-billion provincial budget, or even the government service agency debt that could rise as high as $15 billion.
The point is, politicians whose sole focus tends to be on the four-year election cycle can always rationalize spending today's resource revenues to meet today's needs, arguing that we can't afford to save.
Looking at a longer time frame, however, one has to ask how our kids and theirs will fare without those revenues once the resources are depleted and they are saddled with the debt we are racking up today.
Consider that Norway, with about 5.4 million people, has saved its oil revenues over the past two decades to create the world's largest sovereign wealth fund, valued at more than $1.4 trillion. The fund is protected by rules and policies that ensure its sustainability, operational independence and accountability to Norwegians. Its investment returns exceed $10 billion annually, contributing hugely to the country's economy.
Saskatchewan cannot hope to match the scale of that fund, but it's imperative that we establish a futures fund without delay or excuses. An economic downturn is an excellent time to rethink how we can emerge stronger and lay the foundation for a stronger tomorrow.
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