ABCtech #27 01DEC14 Albertas New Energy Challenge – Lower Oil Prices – An Opportunity Again

ABCtech #27 01DEC14 Albertas New Energy Challenge – Lower Oil Prices – An Opportunity Again

QuikTech Notes

01-DEC-14

Special Edition –

Alberta’s New Energy Challenge

Friday’s editorial in the National Post – “Spend Wisely, Alberta”, reflected on the impact of the sliding price of oil, including several quotes from Alberta’s Minister of Finance, Robin Campbell: “We have to get off the oil train” and “We need to get to the point where we have a budget that is not based on the price of oil”.

Why is this important – warranting leadership and the support of all Albertans? We asked R.J. (Bob) Fessenden, PhD: Fellow, Institute for Public Economics, University of Alberta and former Deputy Minister of the Premier’s Council for Economic Strategy (2008-2011). See also the Council’s May 2011 report entitled Shaping Alberta’s Future

Alberta Enterprise Group

Breakfast – REGISTER HERE

featuring Alberta Finance Minister – Robin Campbell

7:00am – December 3rd,

Petroleum Club, Edmonton

   Lower Oil Prices – An Opportunity Again?  by R.J. (Bob) Fessenden

Albertans should feel encouraged by Finance Minister Robin Campbell’s comments about the need “to get off the oil train” and “to have a budget that is not based on the price of oil”. However, what is implied in these words will not be easy and will require political leadership and the understanding and support of the majority of Albertans.

Alberta clearly has a natural resource based economy that is subject to commodity price cycles. That is unavoidable. However, what is avoidable, is the government’s practice of directing non-renewable natural resource revenues (nnrr’s) into the province’s General Revenue Fund (GRF). It is argued in Shaping Alberta’s Future that the practice of directing nnrr’s into the GRF creates a number of issues, (1) increased volatility of government revenues, (2) decreased urgency to make tough expenditure decisions, (3) increased dependence on nnrr’s to fund important government services, (4) a sense of entitlement in the public to ‘free’ services and (5) lost opportunity to use nnrr’s to generate future economic benefits and future revenue sources for Alberta.

Quoting from the Premier’s Council Report, “Other jurisdictions fund public programs and services from taxes and fees paid by individuals and corporations. Since 2000, Albertans have paid on average only 70% of the cost of such services. Funds from the sale of non-renewable energy assets have paid for the remainder. This has allowed us to keep taxes low while delivering an unusually high level of public services relative to what we pay.” Key recommendations from the Report were that Alberta should (1) “Stop directing money received from the sale of non-renewable energy assets into the General Revenue Fund”, (2) “Finance current expenditures using current revenue” and  (3) “Determine the level of public services desired by Albertans and align revenue to pay for them”.

Lower oil prices will force us to finance government services with a lower dependence on nnrr’s. This provides the opportunity for a significant conversation between Albertans and their government about both expenditures and revenues. The real test will come if-and-when nnrr’s begin to increase in the future. At that time all Albertans should demand that their government not return to the practice of using nnrr’s to finance current government services, but rather use nnrr’s to invest in the province’s future to generate new revenue sources for a more diversified economy. Only then will we be truly “off the oil train”. However, because of our collective addiction to using nnrr’s to fund government services, this will not be easy for Albertans or their government.

One last quote from Shaping Alberta’s Future, “The true Alberta Advantage is not the ability to create a low-tax environment by underwriting a significant proportion of government services with funds received from the sale of energy assets. Rather, the advantage lies in the opportunity to use the proceeds from our natural resource wealth – in combination with our highly educated and skilled people – to intentionally invest in shaping an economy that is much less dependent on natural resources. The practice of spending this converted capital as if it were ordinary income deprives Albertans of the opportunity to intentionally shape our future.”

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