Alberta Premier Danielle Smith making her Feb. 21 address to the province. Screen capture/YouTube

The evening of Feb. 21, Alberta Premier Danielle Smith released a video warning that the upcoming budget will have to deal with lower oil prices. As a result of seeking to get off the resource roller coaster, Smith says Alberta is going all-in on revitalizing its sovereign wealth fund, the Alberta Heritage Fund. That fund was the model for Norway’s sovereign wealth fund, which has made it one of the wealthiest countries in the world. 

For context, Saskatchewan once had a sovereign wealth fund, the Saskatchewan Heritage Fund, created by the NDP Allan Blakeney Government in 1978 but terminated in 1992 by the NDP Roy Romanow government in 1992 to deal with debt incurred under the Progressive Conservative Grant Devine administration of the 1980s. According to a 2012 discussion paper by Dr. Stuart J. Wilson, Jason Penner, and Amy Demyen of the University of Regina Department of Economics:

The fund was initially endowed with $465 million from its predecessors, the Energy and Resource Development Fund, and the Special Investment Account. Unlike the AHSTF, all nonrenewable resource revenues were to be deposited into the fund, but up to eighty percent of these revenues could be transferred to the General Revenue Fund. Up to twenty percent of revenues could be used for provincial development initiatives. Revenues from oil, natural gas, potash, uranium and coal generated the bulk of non-renewable resource revenues, amounting to half of a billion dollars in fiscal year 1978-79. Of that amount, $308 million (61%) was transferred into the Consolidated Fund, $32 million (8%) was used to provide grants for petroleum and natural gas exploration, and $16 million (3%) was earmarked for provincial development expenditures.

The remainder increased fund equity in that year, primarily in the form of long-term investments in Saskatchewan’s Crown Corporations.10 The Crowns would be the predominant recipient of SHF investment over time.

In 2012, the idea of a renewed Saskatchewan sovereign wealth fund was brought up by the NDP, but it never went anywhere, with then-Premier Brad Wall saying he wanted to pay off provincial debt first. 

Here is the complete text of Smith’s address, verbatim. The video is at the end:

My fellow Albertans:

With this year’s budget approaching and economists predicting softer oil and natural gas prices this upcoming year, I want to take a moment to share with you how our government intends to manage the provincial budget and finances in the years ahead.

Although I’m pleased to report that spending cuts will NOT be needed to balance this year’s budget, lower resource revenues will certainly require us to show more restraint than previously predicted. We will ensure this is done thoughtfully and with priority given to the programs and services Albertans most rely on such as health, education, and social supports.

In addition, promised personal income tax cuts will have to wait a year and be phased in responsibly.

As we all know, Alberta is blessed with abundant natural resource wealth; however, the volatile price of oil and gas often has us riding a budget roller coaster from year to year.

And trying to predict world oil and gas prices is much like predicting the weather during an Alberta Spring.

I, and I suspect most of you, are growing tired of this budget volatility. Bouncing between years of plenty, and then having to choose between incurring massive debt or cutting key social programs is not the recurring story Albertans want to see time and again.

It is time for our province to implement a long-term strategic financial plan that gets us to a stable balanced budget each and every year with predictable and stable revenues to fund our core social programs.

And that ‘long term plan’ is what I wish to talk with you about tonight.

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Alberta has one of the largest deposits of oil and natural gas on the planet.

Through Albertans’ ingenuity, hard work and entrepreneurship – coupled with the foresight of thoughtful provincial leaders including Earnest Manning, Peter Lougheed and Ralph Klein – our province has built itself up from humble prairie beginnings into an energy superpower with one of the most successful and growingly diverse economies in the world.

In fact, that economic vitality has driven growth and opportunity right across our entire country.

We have used the fruits of our vast resources to build a province of almost 5 million people with world class cities, parks, transportation networks, schools, health facilities and other social infrastructure.

And we have established a strategic tax advantage that we are using to further attract investment and diversify our economy.

We’re doing a lot right, and have much to be proud of.

But as a province, we have also made mistakes. And we need to correct course now while we still have time.

Bluntly stated, our province has become unsustainably dependent on non-renewable resource revenues.

As an example, in Budget 2023 our province required about $16 billion dollars of resource royalties just to balance our roughly $70 billion dollar provincial budget.

Thankfully, we had a good year and will collect enough resource revenues to cover that $16 billion – with a few billion left over to pay towards our provincial debt and savings for the future.

That said, we simply cannot continue to rely on $16 billion dollars or more in resource revenues to balance our budget year in and out.

That is a recipe for massive debt and cuts to health and education whenever the price of oil takes a dip for a year or two – or more.

It is not sustainable.

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Some say the answer is higher income taxes or a sales tax. I reject this.

We only need look at some of our fellow provinces and many US states, to know that increasing these kinds of taxes to balance a budget is a recipe for economic decline.

That will not be the approach of our government.

Let me propose an alternative solution.

Peter Lougheed had the foresight to create what is today commonly called the Alberta Heritage Fund. The initial purpose of this Fund was to invest a portion of Alberta’s non-renewable resource royalties each year so the investment interest earned in the Fund would eventually grow large enough to eliminate our province’s reliance on resource revenues when they ultimately declined.

Turns out that vision was well ahead of its time. In fact, several countries, such as Norway and many other oil and gas producing nations around the world, adopted that same strategy and now boast sovereign wealth funds large enough to entirely eliminate their nation’s reliance on resource revenues.

In fact, these nations now earn enough each year in their funds to make massive investments in world class infrastructure and other public benefits that were not previously possible.

In Alberta, if we had just re-invested the income earned in our Heritage Fund from the Lougheed Government’s initial deposits of about $12 billion dollars in the late 70’s and early 80’s…even without investing another extra dollar…our Heritage Fund would be worth over $250 Billion dollars today, earning between $12 and $25 billion dollars per year in revenue.

This means we would have been earning enough interest today to make us entirely un-reliant on resource revenues.

But for a variety of reasons – from both within and without Alberta – we did not do this as a province.

Of course, now is not the time for us to bemoan what might have been. In my view, the time has come to act decisively and end any further procrastination.

Last year, our government passed a law mandating that all income earned in the Alberta Heritage Fund must be reinvested in the Fund rather than spent.

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During the current budget year, we hope to invest and reinvest approximately $3 billion dollars of surplus and investment interest back into the Heritage Fund, increasing its value to almost $25 billion dollars – that’s up from $17 billion just a couple of years ago.

This puts us back on the right track.

In addition, I have instructed our finance minister to limit government spending to below the legislated rate cap of inflation plus population growth…not just during lean years with lower oil prices as we expect next year…but also in years when high oil and natural gas prices result in billions of surplus provincial dollars.

Instead of spending all that non-renewable surplus cash on the wants of today, we will be fiscally disciplined, invest in the Heritage Fund annually, strategically pay down maturing debt, and slowly but surely wean our province’s budget off the volatile roller coaster of resource revenues.

In my view, our province has one last shot at getting this right.

We still have several decades during this global energy transition where nations will desperately need our oil and gas resources for their people…and we will provide it to them with the most advanced environmental technology on earth.

So despite this coming year’s predicted global economic slowdown, I believe our province is on the cusp of an unprecedented and prolonged energy resource boom –– one that will include both hundreds of billions in investment and tens of thousands of new jobs — not only in oil and gas production, but also in designing and building the most advanced emission reduction technologies on earth.

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It is going to be an exciting time for our province and for Canada – especially once we finally get a Federal Government that acts like a strategic partner, rather than a delusional adversary.

Prior to the end of this year, our government will publicly release a long term financial plan charting a path to a Heritage Fund of between $250 and $400 Billion dollars by the year 2050.

2050 is also our target for achieving a carbon neutral economy. Meeting these two goals simultaneously with Alberta technology, determination and ingenuity will leave an invaluable legacy for future generations of Albertans and Canadians.

There is no doubt in my mind we are capable of achieving these goals; but we need to start today and stick with it fervently year after year.

I ask for your support as our government commits itself to placing our province on this path to prosperity that will last long after our last barrel of oil has been produced.

We, our children and their children, deserve nothing less.

Thank-you, goodnight, and may Alberta remain forever strong and free.

 

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Here’s the video:

 

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