For a rainy day, and for today

Socking away resource royalties will help provincial economies present and future.

(Photo: David Stobbe/Reuters)

In 2010, the Saskatchewan government halted work on a children’s hospital after potash prices unexpectedly dropped. The incident showed how dependent some provinces have become on resource revenue to fund their current expenditures.

Saskatchewan’s NDP Opposition leader Dwain Lingenfelter has proposed to change that. If he wins the province’s Nov. 7 election, he promises to dedicate a portion of non-renewable resource revenue to a “Bright Futures Fund,” as he put it, “to ensure Saskatchewan families benefit from resource wealth over the long term.” The return on that investment would help fund the province’s priorities in perpetuity.

The same motivation—intergenerational equality—inspired Alberta’s Peter Lougheed to create the Heritage Savings Trust in 1976, setting aside 30% of all oil and gas revenues. Since 1987, though, the Alberta government has taken much more out of the fund than it has put in. Hence Lingenfelter’s rider for Bright Futures: it “would be independently managed, and the government would not be allowed to withdraw money to cover short-term deficits and day-to-day spending.”

But there’s a better reason why provinces should hive away their oil, gas and mining windfalls. It has less to do with future generations and more to do with how royalties are harming the Canadian economy today. Economists use the term “Dutch disease” to describe the way resource booms spur an inflationary spiral that causes other industries to wither and hampers overall competitiveness, as happened to the Netherlands as a result of its natural gas boom in the 1960s.

In Canada, where provincial governments own the resources, much of this inflation gets transferred to the public sector. Last year, Alberta obtained 23.5% of its total revenue from oil, gas and coal. Not coincidentally, it spent a similar amount more on its citizens than other provincial governments, more than $10,000 per capita. It likewise sets the benchmark for nurses’, teachers’ and doctors’ salaries, forcing other provinces to play catch-up. This in part explains Canada’s rapidly rising health-care costs and flagging productivity.

Norway doesn’t have this problem. As Lingenfelter noted, its Petroleum Fund has stashed away more than $500 billion in just 15 years. It takes 96% of resource revenue out of circulation and invests it outside Norway, in sectors unrelated to energy, as a counterweight to the country’s oil dependence. Norway’s government, meanwhile, must exercise fiscal discipline as if the oil windfall didn’t exist.

Lingenfelter has accused Brad Wall’s governing Saskatchewan Party of letting $10 billion of resource revenue flow through its hands since 2007. Truth be told, it’s no different from any other provincial government. In the past fiscal year, B.C. juiced its spending with $2.8 billion from non-renewable resources; Newfoundland, $2.4 billion; Alberta, a whopping $8 billion.

Whoever wins Saskatchewan’s election should adopt some form of Bright Futures Fund. All provinces with oil, gas and rocks should—not just for the grandkids, but for the benefit of the economy right now.