COOPER: Heritage Trust Fund should pay dividends directly to Albertans

Premier Danielle Smith recently announced the Government of Alberta was about to renovate the Alberta Heritage Fund (AHF.) The fund was started by Peter Lougheed in 1976 and was intended to receive 30% of the province’s oil and gas revenue.For a time, regular payments were made to the Fund, which was relatively painless during the OPEC-driven oil price spike of the late 1970s. But soon enough revenues were diverted to pay for general expenditures or for special projects that caught the attention of Lougheed’s successors, when oil prices fell during the next decade.Thus began the roller-coaster ride that Smith wants to avoid in the future.Writing in the Financial Post, Jack Mintz likened her proposal to the mythical quest for the holy grail. As many economists do, he made a comparison between the AHF and the equivalent fund in Norway, the Government Petroleum Fund, now called the Government Pension Fund. It was established in 1990.Today, the Norwegian fund is worth $1.4 trillion; the AHF a lousy $26 billion. Over the years numerous articles have compared the two, all trying to answer the questions: what went wrong in Alberta?When Lougheed established the AHF, Alberta shared the expectations of the Norwegians, that oil and gas resources had a relatively short-term life. The Norwegians’ offshore sources are still held to be relatively short-term as compared to the Alberta oil sands and the extensive gas fields of the province. So, expectations in the two jurisdictions have changed.This is not the only way that Alberta and Norway differ. Norway is ethnically and culturally homogeneous, with a stable, multi-generational population, not a highly mobile one. It is sovereign, not a subnational political entity. It also enjoys a 25% sales tax and is content with massive intervention by the Norwegian state in its economy, both of which have little support in this province.To be brutally practical: Alberta has nothing to learn from Norway.Not so Alaska.The Alaska Permanent Fund (APF) was established the same year as the AHF and largely for the same reason: a flood of resource revenue, in Alaska from Prudhoe Bay oil leases.During the early 1970s, the state government quickly spent what was considered windfall revenue on some frivolous projects. Alaskans quickly realized that the state government could not be trusted to manage properly the oil-based revenue. The newly elected governor, Jay Hammond, proposed a state constitutional amendment that would require 25% of resource revenue to be deposited in its Permanent Fund.A second provision ensured that a part of the revenue be added to the 25% to offset the effects of inflation and thus to preserve its constant value.Third, a portion of what remained was be paid to qualifying Alaskans as an annual dividend. The first two aspects of the APF were designed to make the rules governing the fund’s growth difficult for any spendthrift government to change.As several Fraser Institute studies of the Alberta fund have pointed out, the rules that mandated 30% of the resource royalty of the AHF were statutory, not constitutional, which meant that they could easily be ignored, changed, or eliminated by any successor government. The Alaska rules made them more difficult to change. This was a good thing.The threat of a future NDP government or another fiscally imprudent conservative one makes the case for constitutionalizing the level of annual contributions obvious. This could be done by the Constitution of Alberta Amendment Act (1990) or, with more difficulty (because it would involve the Government of Canada), by way of s. 43 of the Constitution Act (1982).The provision of the Alaska fund to provide dividends to citizens is a second and more important way of ensuring the government behaves prudently and sensibly.The logic is not entirely obvious, which is one reason why Peter Lougheed opposed it along with Ralph Klein’s action in 2005-6 of providing all Albertans with a $400 “prosperity dividend.” Ralph had the curious notion that individual citizens could better decide how to spend their own money than bureaucratic economic experts.The point of the Alaska annual dividend is not simply to provide citizens with some cash — in recent years more than a thousand dollars — though that would certainly be welcomed by Albertans.Rather, it is to give them a sense of ownership in the resources found in the state, resources that belonged to Alaskans, much as resources in this province belong to Albertans. The logic was spelled out by Milton Friedman. The Nobel Laureate in economics recommended this provision to create a political reason for all future governments to manage the fund soundly and keep the cheques coming. Obviously, the same logic applies to Albertans as to Alaskans.Tegan Hill of the Fraser Institute estimated in 2021 that, if Alberta had followed the Alaska rules, the AHF would be worth $234 billion rather than the $16 billion it was back then.Moreover, the annual dividends to Albertans would have totalled over a hundred billion dollars, which would have put their payments fairly close to the Alaska dividend.Some changes in the Alaska model are needed before it fits Alberta. Because of the mobility of the Alberta population, a residency requirement would have to be introduced — three to five years sounds reasonable.Second, the percentage of revenue sent to the AHF would have to be calibrated so as to ensure it did not become a target for confiscation by Ottawa. As Finance Minister Nate Horner said, “no other province has the sort of ability to do this.”Exactly: that is why a greatly expanded AHF would make Alberta an even bigger target than we already are. Dividends to citizens would not only bypass top-down control by experts but keep the jingle in Albertans’ jeans, where it belongs, not in Ottawa.

COOPER: Heritage Trust Fund should pay dividends directly to Albertans

Related Stories