It’s no secret that the Alberta government doesn’t have the money to make the province thrive these days. Premier Danielle Smith has said that provincial coffers only contain enough to give teachers a 12 per cent raise over four years, a low-ball offer that has led teachers to vote to strike starting October 6. The health care system is underfunded and struggling. And Alberta’s roads are crumbling.
In recent years, Alberta has blamed many of its money issues on equalization payments. This often-misunderstood program distributes funding for health care and public services among Canada’s ten provinces based on a province’s average income per capita.
But the amount Alberta sends to other provinces so they can keep their hospitals and schools open pales in comparison to how much Alberta has given away to oil companies over the last five decades.
Historically, the province has taken a passive approach to management of its vast natural resources. Oil and gas have generated billions in revenue, but much of this wealth has gone to the companies who extract the oil rather than the province, which owns the oil. Despite government attempts in the seventies to set money aside for the future, the oil royalty money the province has earned over the past forty years has largely gone to the provincial budget rather than being reinvested.
This kind of thinking has held the province back.
Money in, money out
Fifty years ago, then-premier Peter Lougheed put in place financial structures that would allow Alberta to invest its oil money, thus saving and earning money for the future. His Progressive Conservative government created the Heritage Savings Trust Fund in 1976. It initially set aside 30 per cent of Alberta’s oil revenue to serve as a buffer for when oil income was less stable.
Within ten years, the fund’s value had shot up to around $12 billion.
However the government stopped contributing to it in 1987 after oil prices plummeted. It wouldn’t resume contributions to the fund until 2005. Until 2005, it also transferred all of the fund’s interest into the provincial budget, using it to keep public services such as hospitals and schools running. It also began transferring all royalty earnings into the provincial budget when oil prices plummeted in the late 80s.
Only in 2005, when oil royalty revenues had reached over $14 billion, did the province invest some of the money in the Heritage fund. They’d stop again in 2008, despite royalty earnings remaining high.
That’s a whole lot of money that the government chose not to invest.
If government investments and royalty rates had continued at the same rate since the fund’s creation, today it would be worth over $688 billion.
If the province had done nothing with the fund except let it accumulate interest – if it had not put the money toward the provincial budget – today, it would be worth over $237 billion.
Instead, investments flatlined, the fund is currently worth a meagre $30 billion, and the province is billions more in debt.
What can we do?
What’s needed is a change in how the province views its oil and gas resources. Albertans collectively own these resources and the government has a duty to manage them in the best interests of the people. That’s not what’s happening now.
Most of the wealth made from oil and gas goes to the companies that take the oil out of the ground, rather than to the province. When times are good Alberta’s oil sands companies pay close to 40 percent of their revenues in royalties to the government. However Alberta’s royalty system is structured in a way that means some producers pay no royalties at all when prices are low.
According to an analysis by CBC, over one 10-year period royalties across all sectors–gas, conventional oil, and oil sands–dropped from an average of 20 per cent to around 10 per cent. In comparison, Saudi Arabia collects 85 per cent of oil profits as royalties.
Alberta needs to take a more offensive approach to its resource management if it wants to solve its debt issues.
“You have to leave the feudal thinking and leave the idea that people coming to exploit you have the right to tell you what to do,” oil and gas expert Rolf Wiborg said in an interview with The Tyee. Instead of letting oil companies call the shots and keep the profits the province’s resources generate for them, Alberta could require oil companies to pay a greater percentage of profits back to the public purse, and allow everyday Albertans to reap the benefits.
