Guest Opinion: Smith government can deliver cheques to Albertans

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This fall, Saskatchewan’s Moe government plans to send $500 checks to taxpayers in light of that province’s recent windfall in resource receipts.

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While this may seem like an attractive policy, the new Smith administration should resist the temptation to follow Saskatchewan’s lead.

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While Albertans should benefit from the province’s resources, there are better ways to do so, and that is a resource income savings fund.

In Alberta, resource revenues, which include oil and gas royalties, remain a volatile source of revenue that helps drive a familiar cycle.

In times of relatively high resource prices, the government tends to run budget surpluses and increase spending.

When resource prices inevitably fall, the province inevitably turns to deficit.

Consider the last commodity cycle.

As resource receipts began to increase, expenditure per person in Alberta (adjusted for inflation, excluding debt interest costs) increased from $7,393 in 1998 to $13,114 in 2008.

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As soon as resource revenues fell, the province had to borrow money (i.e. run deficits) to pay for expenditures that could only be sustained – without deficits – when resource revenues were high.

These budget deficits resulted in a massive accumulation of debt that Alberta’s taxpayers ultimately have to fund.

Today, with its recent windfall, the Smith administration should avoid falling into the same cycle and instead set up a fund to avoid future deficits and pay checks to residents — not just once, but continuously.

To understand exactly how that would work, look to Alaska.

In 1976, the Alaskan government established the Permanent Fund.

(Alberta established the Heritage Fund that same year, though it was valued at just $16.2 billion in 2019-20, compared to $65.3 billion for the Alaska fund.)

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Under the Alaska Constitution, the state government is required to contribute a specified percentage of all mineral revenues to the fund each year, thereby removing a portion of the mineral revenues from the state budget, alleviating the pressure for increased spending during periods of relatively high mineral revenues.

In addition, a portion of the Fund’s income must be set aside each year to offset the effects of inflation and ensure that the Fund’s real value is preserved.

And crucially, a portion of the fund’s income is paid directly as dividends (ie, checks) to Alaskans, which is key to the fund’s success.

In Alaska, the annual dividend directly links the financial well-being of citizens (in the form of annual cash payments) to fund performance.

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Put another way, because Alaskans have a direct financial interest in the fund, they are more concerned about its independence, sustainability, and investment performance than they otherwise would be, creating a real constraint on government action (e.g., the spend savings). ), which could adversely affect the performance of the fund.

The Alberta government should reinvigorate the Heritage Fund by learning from Alaska’s success.

That means introducing a constitutional requirement for constant contributions, inflation-proofing the fund, and paying annual dividends to Albertans.

As Alaska has proven, it is possible to prioritize fiscal stability and provide residents with ongoing controls.

Tegan Hill is Senior Economist at the Fraser Institute.