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Alberta government does not need a "rainy day fund"

Saving for a purpose



The Alberta government does not need a "rainy day fund." Albertans themselves don't save for a rainy day, they save for a purpose. They save for a new car, a down-payment for a home, their child's education or for their own retirement. In Alberta households saving has a plan and a purpose. The province should be no different.

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It makes little difference that the current Alberta Heritage Savings Trust Fund was not solely intended to be a "rainy day fund" or solely to "diversify the economy." Yet, this is precisely how many Albertans view the Heritage Fund. This perception of dubious purpose may explain why few Albertans are demanding more money be put into the Heritage Fund. Why would anyone want more money in a fund they believe is either going to be squandered in further economic diversification (read: corporate welfare) shenanigans, or hoarded until the mythical "rainy day" comes? Fortunately, the current fund is no longer being wasted propping-up failing Alberta companies, as it was in the 1980s. In fact, over the past five years the fund has generated an average annual return of 11.1 percent. While the return from the fund may be significant, the current purpose of the fund is lacking. Today, most of the investment revenue is used to boost general revenues (read: spending) or fund post-secondary scholarships. The nebulous purpose of Alberta's Heritage Fund is in stark contrast to the Alaska Permanent Fund. A more sensible model exists in oil-rich Alaska. Like Alberta, that State created a savings fund in 1976. Their Permanent Fund balance is now $39-billion, as opposed to Alberta's $17-billion. And every Alaskan received a cheque last year for $1,654, all from the investment income generated by their fund. The goals of the Permanent Fund are many-fold, but the overall purpose is to keep one-time, wind-fall resource revenues out of the hands of spend-happy politicians and to give Alaskans an equal share in the benefits. Every Alaskan who received a cheque in the mail last year knows the purpose of the Permanent Fund and why it's beneficial. Unlike Alaska, the Alberta government spends the vast majority of these one-time, windfall revenues immediately. And because Alberta is the highest per-capita spender and lowest taxed province in Canada, we rely very heavily on non-renewable resource revenues for spending. If (and eventually when) those revenues dip temporarily or drop indefinitely, the Alberta government will have to either cut spending back to normal levels, raise taxes or go back into debt. Obviously, the Canadian Taxpayers Federation (CTF) would rather see spending cut than taxes raised or debt incurred. However, none of those options need be selected. If the government simply limited spending growth, while saving a portion of non-renewable resource revenues, the Alberta government could get to a position of not being reliant on high world energy prices and resource revenues. After this point, significant surpluses would be incurred from the investment income, allowing Albertans to receive the benefit of dividend cheques or permanent tax cuts. The CTF is making the case that the purpose of our savings should be in the short-term, self-sufficiency, and in the long-term, significant financial benefits for Albertans. In August 2007, the Alberta government appointed Dr. Jack Mintz, former head of the CD Howe Institute, to lead a commission tasked with coming up with a savings plan and purpose. Dr. Mintz delivered his commission's report nearly six months ago, and Albertans have yet to see the recommendations. The Alberta government could be in for a significant windfall this year from record oil prices. A savings plan and a purpose for this money must be decided by Albertans before, not after this money is spent. - Scott Hennig, Alberta Director shennig@taxpayer.com


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