Last week, every man, woman and child in Norway became a millionaire, at least in theory, as Norway’s sovereign wealth fund reached a value of 5.11 trillion Norwegian kroner. With a population of 5.1 million people, that amounts to just over 1 million kroner per Norwegian. In Canadian dollars, that’s equivalent to over $909 billion, or $178 000 for every Norwegian.
The Norwegians started their petroleum fund in 1996 as a way of ensuring that the country’s petroleum wealth did not just benefit the current generation, but all future generations as well. The strategy was also designed to protect the Norwegian economy from becoming dependent on oil revenues, from burning itself out due to too much oil activity, and from the endemic boom-and-bust nature of volatile international energy markets. Norway saves virtually all of the revenue generated by the oil sector in any given year.
This savings strategy may sound familiar to many Albertans who will remember Peter Lougheed’s efforts to do something similar in Alberta. These were exactly the objectives of the Heritage Savings Trust Fund when it was set up in 1976—to save a portion of Alberta’s oil wealth for the future and protect the economy and government revenues from becoming dependent on volatile oil and gas.
Thanks to Lougheed’s vision, by the time the Norwegians started their fund in 1996, Alberta already had $12 billion in it. Despite a $12 billion and 20-year head start, however, our Heritage fund today sits at a pathetic $16.7 billion, less than two percent of the value of Norway’s fund.
How did Norway manage to accumulate so much money in such a short period of time? The Norwegian government decided early on that their world-class public services would not be funded by oil revenues, but rather through progressive taxation. Taxes pay for public services, oil money gets saved for the future. In addition, Norway owns 70 percent of its oil industry, taxes all oil profits at a rate of 80 percent, and only spends four percent of the fund’s total assets in any given year. This has protected the fund from inflation and has resulted in a rate of savings of approximately $1 billion per week. Alberta, however, has not invested one single penny in the Heritage Fund since 1987.
To put those numbers into perspective, four percent of the fund’s current value amounts to about CAD$36 billion.
The Alberta government’s total projected revenue for this year, from all sources, is $38.7 billion. In other words, a fund the size of Norway’s could almost fully replace all existing Alberta government revenues.
What has this meant for Norwegians? Some of the world’s best social programs, universal daycare, free university tuition, a world-class healthcare system, 25 paid days of vacation every year and much, much more.
In Alberta, the government has run budget deficits for the last seven years, is cutting funding to health care and education to balance the budget, relies increasingly on tuition to fund post-secondary education, and has a population that works longer hours to make ends meet than anywhere else in Canada.
The Conservatives continue to insist that this is the only way to do things. They are certain that raising taxes, increasing royalties and saving all our oil and gas revenues would spell disaster for the economy.
Somehow, the party that prides itself on fiscal responsibility and financial stewardship has managed to screw this up to the tune of almost $900 billion. Albertans should be outraged at this complete mismanagement and incompetence, and at the total lack of foresight and vision demonstrated by our various governments over the years.
The Norwegians accomplished all of this in just 18 years. That means it’s not too late for the Alberta government to step up and take its responsibility to Albertans seriously. The recipe is straightforward and simple: return to a progressive tax system and increase taxes to a point where they are fully and properly funding our public services; increase royalties on oil and gas so that they are in line with what jurisdictions around the world charge; and begin saving 95 to 100 percent of our oil and gas revenues.
Starting today would make us free of our dependence on oil and gas within 10 years, help secure our long-term financial sustainability and ensure our quality of life regardless of what happens to our natural resource production in the future. V
Ricardo Acuña is the executive director of the Parkland Institute, a non-partisan, public policy research institute housed at the University of Alberta. The views and opinions expressed are his own and do not necessarily reflect those of the Institute.