28 February 2015

Alberta woes—It ain't the economy, stupid

Here in Alberta, energy superpower, we are going through the bust part of one of our infamous boom and bust cycles. The premier is weighing the government's options. Cutting MLA salaries, imposing health-care premiums and hiking post-secondary tuition are some of the ideas mentioned. He has even floated the possibility of adjusting the province's regressive flat tax and—the heavens tremble—adopting a sales tax. “Everything is on the table,” he has declared.

Well, not quite everything, it seems. He hasn't discussed the approach that would end the ridiculous misery of boom and bust once and for all. The solution is no secret. Most recently, it was proposed in a unique way by University of Calgary economist Ron Kneebone. "It's not the economy that's the problem," he observed, "It's the government itself that's the problem." He points out that the oft-mentioned lack of diversity is neither problem nor solution because the Alberta economy is in fact very well diversified. The problem is that the government insists on making the same mistake over and over again—the mistake of including oil revenues as a major part of its budget. His advice? He suggests the government should always budget for $50 a barrel oil. If the price goes above that, and it surely will, the added revenue goes into the Heritage Fund, just as Peter Lougheed intended all those many years ago.

This is of course the famous Norway approach. Norway, too, has substantial oil and gas revenues, but not the attendant boom and bust. The government includes very little of those revenues in its budget. The bulk goes into a sovereign wealth fund, now worth about a trillion dollars. When Norway's oil and gas run out, the whole population will be able to move to the Bahamas and live in the sun. In the meantime, the country's economy rolls along perfectly well with a significantly higher GDP per capita and a significantly lower unemployment rate than Canada's.

This is Premier Prentice's big chance. He can deal with boom and bust once and for all and guarantee future Albertans a solid nest egg in the bargain. He can, as Professor Kneebone puts it, promise to "never again hold Albertans hostage to high energy prices." We once had a premier with that kind of vision—his name was Peter Lougheed. Will the next one be Jim Prentice?

1 comment:

  1. The Tories aren't prepared to face down the angry mob that would take to the streets if they dared impose the alternative - a sales tax.