Friday, April 03, 2015

A better understanding of Alberta vis Norway by the Star.

Jim Prentice would appear to be a brave man among career politicians.
Some time in the next two weeks, the Alberta premier will go to the polls seeking a mandate for one of the most radical budgets in his province’s history.
It is an austerity budget that, among other miseries, cuts Alberta Health Services by $286 million in funding and 1,700 jobs. Tabled late last month in response to a drastic 68 per cent plunge in oil-and-gas royalty revenue, Prentice’s budget also calls for almost 60 higher taxes and fees, and a new health tax.
Prentice will go to the people tied in the polls with the Wildrose Party. He will have to answer for a Progressive Conservative economic stewardship that now burdens Albertans with a record deficit for 2015-16 estimated by the Prentice government at $7 billion, or $1,707 per Albertan, compared with just $795 per person in Ontario.
And that is a rosy forecast, assuming an average world oil price this year of $65 (U.S.), considerably higher than, say, TD Bank’s estimate of $52.
Under Tory rule, Alberta has lost its prized debt-free status. And if epic deficits continue, becoming a structural shortfall, borrowing to service debt could turn Alberta into a have-not province by the next fiscal year, TD Bank warns.
And Prentice has audaciously blamed Albertans for their fiscal crisis.
Albertans have for decades tolerated, if not encouraged, a mismatch of the highest spending on government services of any province (about $1,300 per citizen) and the lowest personal and corporate taxes in the country.
Albertans have elected a succession of fiscally irresponsible governments, which have also failed to emulate Norway and Alaska in adequately building a rainy day fund with oil and gas royalties. So Albertans should “look in a mirror,” Prentice said recently, if they want to know why their province is in fiscal straitjacket.
Prentice will win the election. Albertans, averse to political change, have kept the Tories in power for 43 years. Wildrose is in disarray, helmed by a neophyte leader and still smarting from the defection last year of 11 of its legislators to the Tories.
Prentice is a veteran of Alberta politics who held several cabinet posts in the Harper Government before taking a top-level job in banking. Despite winning leadership just last year, Prentice has already improved his party’s standing with a public disenchanted over the fiasco of the brief Alison Redford premiership.
What Prentice likely won’t have time to do in the short space of an election campaign is promote an overdue economic renaissance for his province. With a mandate from Alberta voters, perhaps he will.

  • Edmonton needs to raise royalties on Alberta’s petroleum wealth, aligning itself with other major oil-producing jurisdictions. That won’t be easy, given the fierce opposition from the Canadian oilpatch to then-premier Ed Stelmach’s 20 per cent increase in royalties in 2007. After a three-year climbdown, royalty rates were effectively back to where they’d been in 2007. Indeed, that controversy helped spur the creation of the ultra-conservative Wildrose Party, which became the Tories’ chief electoral nemesis. Thus Alberta remains at the giveaway end of the global resource royalties spectrum.
  • In 2012, the Alberta-based Parkland Institute calculated that since 1986, the Alberta oilpatch had generated about $260 billion (Cdn.) in pretax profits from the tar sands alone, of which Albertans’ share was less than $25 billion — a sum that disappeared into the government’s general revenues.

  • Alberta needs to diversify its economy, one already blessed with thriving agriculture and tourism sectors. It is folly to allow GDP to fall hostage to outside forces over which one has no control, a lesson Alberta should have learned from the prolonged 1980s oil slump. Texas did, transforming itself into a world-leading centre of aerospace and computing technology development. So did Pittsburgh, becoming a medical and environmental R&D leader after its mainstay steel industry collapsed. Boise has emerged as a thriving high-tech hub generating start-up businesses despite its relatively remote location.
  • There is a great future for substantial Alberta industries in environmental and telecommunications technologies, specialty manufacturing, and medical science R&D — all of which have already established a base in the province.

  • Alberta can not continue to fund a significant portion of public services with non-renewable resource revenues. Resource royalties still account for about one-fifth of Alberta government revenues, down from an eye-popping one-third for a nine-year span starting in 1998. Like Norway, Alberta will have to both live within its means and look beyond the fossil-fuel sector to fund the provision of public services.
  • Oil and gas are finite resources, obviously. And Eldar Saetre, head of Norway’s state oil producer Statoil, strikes a sobering note in explaining that the current cutbacks at his enterprise aren’t due solely to the calamitous drop in the world oil price. Statoil, he explains, is in a permanent slimdown phase, because of two factors: World oil supplies are gradually depleting, and fossil fuels are poised for replacement over the next two decades by alternative energy sources. Petro-economies will eventually be a thing of the past.

  • In the meantime, though, it’s not too late to bulk up the Heritage Fund as a safeguard against volatile economic cycles. Alberta’s sizeable agriculture industry is a cyclical commodities sector, too, after all.
  • With daily oil production of 2.3 million barrels, Alberta produces more oil than Norway (1.9 million per day). But Oslo does not fund government activities with its oil wealth, as Alberta does. Norway’s oil-related receipts are contributed to the 25-year-old Government Pension Fund Global, the world’s biggest sovereign wealth fund with assets of more than $1.1 trillion (Cdn.). Though it rarely does so, Oslo is legally permitted to tap the fund, but only by 4 per cent of annual income per year, which leaves the principal untouched.
    Alberta’s last sage premier, Peter Lougheed, created the Alberta Heritage Savings Trust Fund much earlier, in 1976. But Alberta stopped contributing to it just 11 years later. Edmonton also repeatedly raided the fund for special projects and everyday spending. The Heritage Fund thus has a comparatively measly $17 billion in assets.
    Assets of Alaska’s Permanent Fund, which pays each Alaskan a dividend of between $1,000 and $2,500 a year, now totals almost $68 billion (Cdn.) despite that annual payout. In a province-wide TV address last month, Prentice told Albertans that “one of the great mistakes we have made has been our commitment to let the Heritage Fund lapse.”
    The remedial steps above have been recommended many times over past decades by, among others, the left-leaning Canadian Centre for Policy Alternatives (CCPA) and the right-leaning Fraser Institute.
    These measures, essential to Alberta’s future prosperity, have met with resistance each time they are broached, chiefly by a petroleum industry that has an outsized influence over the lives of 4.1 million Albertans. It is for Albertans, ultimately, to decide whether Big Oil will run their lives. Or if it is time finally to become, to borrow the apt Quebec motto, maĆ®tre chez nous — masters of our own destiny.

    Still another case to Vote for the Alberta NDP; for Government!  WRP are dropping fast .

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