Varcoe: Another fumble on Heritage Fund adds to ‘Alberta’s single-greatest missed opportunity’

Calgary landscaper Mitchel Dyck made headlines this week for hitting a financial jackpot.

After collecting a $70-million prize in the Lotto Max draw, he spoke with reporters about his plans.

“Who doesn’t want a fancy car, a fancy truck, a fancy house and those kinds of things?” he said. “But we’re going to put the money in the bank.”

It seems like a sensible strategy: save an unexpected windfall and make a long-term plan.

It’s the kind of sound advice the Alberta government should heed as it has struck budget pay dirt. On Thursday, the province forecast a $12.3-billion surplus for this fiscal year.

If we include last year’s unexpected bonanza and another $10.9 billion in projected surpluses for the next two years, it amounts to a stunning $27 billion within four years.

If now isn’t the time to sock away cash into Alberta’s rainy-day fund, when will the magical moment arrive?

That’s why it’s confounding to see Danielle Smith’s government reverse course, deciding to retreat from plans made by her predecessor in August to inject money into the Alberta Heritage Savings Trust Fund.

In the summer, the UCP government pronounced it would make the “largest ever single-year investment in the Heritage Fund,” retaining the account’s investment income from last year and allocating another $1.7 billion.

On Thursday, the $1.7 billion was pulled back.

It will now be up for grabs as the government contemplates what to do with future windfalls.

Jim Dinning, Alberta’s former finance minister under Ralph Klein who saw the province tackle its mammoth debt in the 1990s, has some advice on managing this unexpected bounty.

“Commit to growing the Heritage Fund, and (to) getting out and selling Albertans on the importance of saving these not-renewable, never-to-come-again dollars from the sale of a barrel of oil,” Dinning said Thursday.

“This is a forever fund, and if you don’t start now fortifying the Heritage Fund and convincing Albertans of the wisdom of that — in these times when you’ve got surpluses that are from oil and gas revenues — when the hell are you going to do it?”


The government expects to collect an unprecedented $28 billion in non-renewable resource revenue, amid record production and soaring energy prices.

It’s a staggering sum — representing a whopping $6,185 for every person in the province, all flowing from energy revenues.

The government has choices to make. The province is already paying down debt, about $13.4 billion this fiscal year.

Some cash — about $2.8 billion over three years — has now been earmarked for a package of measures to assist Albertans facing soaring bills.

There’s still money left over.

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Over the next three years, an estimated $5.8 billion in cash surpluses will accumulate and be available for debt repayment or savings.

On Friday, Premier Danielle Smith noted candidates in the recent UCP leadership race had different ideas about how much to save, invest in infrastructure or assign for debt retirement.

“We still have some discussion that we need to do,” Smith said.

“I do believe that these kinds of decisions should be made through the proper processes, as opposed to just the finance minister deciding or just the premier deciding.”

While process may matter, the risk is the money will become a tempting target to spend as a spring election draws near.

“The walk-back itself was notable because there is not a constraint here that’s forcing them to change their plans,” said Trevor Tombe, an economist at the University of Calgary.

Alberta already has the lowest debt-to-GDP ratio in the country at just 10 per cent, compared with 16 per cent in British Columbia and Saskatchewan, and 38 per cent in Ontario, according to RBC Economics.

The fund, however, should be set up to grow and provide significant dividends for future generations.

Created by the Lougheed government in 1976, the Heritage Fund was intended, in part, to save for the future. In the early years, 30 per cent of provincial resource revenues were deposited into it, but that stopped by 1987.

Instead, some $43 billion in investment earnings have flowed back into provincial coffers, according to the fund’s latest annual report.

Provincial governments in the past have contemplated socking away more cash, yet never stuck with it.

This week’s decision is another example of a lack of resolve.

While expanding the account to a massive size, such as Norway’s sovereign wealth fund, is often discussed, it could paint a target on the province’s rainy-day reserves, noted Canada West Foundation CEO Gary Mar, a former provincial cabinet minister.

Yet, he believes a certain portion of budget surpluses should be saved to create another source of provincial revenue in the future.

The Heritage Fund, with net financial assets of $17.9 billion at the end of September, has reported a five-year rate of return of 6.2 per cent.

With higher interest rates coming and extreme market volatility ahead, it may be a better short-term strategy to pay down debt than inject additional money into the fund, although in the longer run, it should achieve better results.

However, it’s also apparent governments of all stripes have a hard time saying no to short-term spending pressures.

“We don’t know if we’re going to get another boom like this,” Mike Holden, chief economist of the Business Council of Alberta, said Friday.

“That’s why there is a bit more urgency to focus on long-term fiscal sustainability, because we can get it right this time. This may be our last, best chance to at least get it partly right.”

Thursday’s decision may only be a temporary pause.

However, history has proven when it comes to the Heritage Fund, each missed boom is followed by a bust and regret more money wasn’t set aside.

“The fact that our Heritage Fund is as small as it is today is Alberta’s single-greatest missed opportunity,” said Tombe.

“As for the future of the Heritage Fund, it remains — again — up in the air,” added Dinning. “I wait with hope for the fortification of the Heritage Fund.”

Chris Varcoe is a Calgary Herald columnist.

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