Danielle Smith bets Albertans would rather save than spend — finally
Premier pitches massive Heritage Fund as she shelves tax cut, tightens spending
There's paying attention, and then there's paying for attention. The latter has become quite an Albertan habit.
Premier Danielle Smith has picked up the habit that Ralph Klein started in the early 1990s and delivered her second paid-time premier's televised addresses Wednesday — though all the other premiers in between these two former broadcasters have also done so, including Rachel Notley and Jason Kenney.
Smith used her speech to set the tables for a budget that restrains spending in uncertain economic times, just like UCP predecessor Kenney before her. But while he rooted his fiscal posture with a kind-of "I need to fix what the NDP bungled" message, Smith is offering more of a long view in her justification — a true classic of the Alberta political genre.
Any shortcomings public agencies or others might see in next week's provincial budget will be in service of the future, the Heritage Savings Trust Fund, and the need to get off the — stop us if you've heard this before, Albertans — oil revenue roller coaster.
Motion sickness
It's more often economic critics, rather than premiers, who bemoan the ups-and-downs of budgeting that relies so heavily on how much natural resource royalties have rolled in any given year. When the province's cup suddenly ranneth over in 2022, both the right-leaning Fraser Institute and left-leaning Parkland Institute took aim at a finance minister seeming to merely enjoy the ride.
In her video speech Wednesday, it was the premier who denounced "bouncing between years of plenty and then having to choose between incurring massive debt or cutting key social programs" as something Albertans have grown tired of.
"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," Smith told Alberta viewers.
The devilish details will be in the Feb. 29 budget, but Smith insisted there are enough of those oil-royalty billions to still spend massively on present-day needs, rather than impose spending cuts.
But she did say Finance Minister Nate Horner will increase spending by less than the rate of inflation and population growth — in other words, with less money than is needed to keep pace on services and infrastructure as costs and demands grow.
That's the sort of restraint the Alberta NDP has already forecast will translate into "cost cuts in an already cracking health and education system."
Smith is also further postponing her election promise of lowering personal income tax rates by a year, on account of shaky oil price forecasts.
To weather any criticism, Smith tees up her budget by urging Albertans to keep their eyes on a bigger, more distant prize: the promise that her government's longer-term plan can balloon the Heritage Fund to between $250 billion and $400 billion by 2050.
We're a few quantum leaps away from there. Alberta's long-term savings fund stood at $17.1 billion just two years ago. When inflation-adjusted, that's much weaker than the $12.7 billion that the fund's creator, former premier Peter Lougheed, left it at way back in 1985.
The latest oil-wealth bump helped Kenney and Smith pump more investment into it, and Smith told TV viewers its value will approach $25 billion in this budget year.
Sure, the much-revered rainy day fund will be healthier than it's been in years — but she's talking about growing it tenfold or better in a quarter-century.
How?
She appears to be saving that answer for a path-charting "long-term financial plan" that Smith said she'll release later this year. A graphic in her video predicts the Heritage Fund can hit $125 billion by 2036.
But she did lay hints to at least part of that path in her speech, by arguing that if Alberta had reinvested all the income earned on Lougheed's provincial nest egg since its 1970s inception, the province would have north of $250 billion in the Heritage Fund.
Instead, Alberta has routinely transferred the interest earnings into general revenue, usually more than one billion bucks a year — until the UCP government began plowing that money back into savings, starting in 2022.
Smith said a fund worth $250 billion could be delivering $12 billion to $25 billion of revenue to the government, enough "to make us entirely unreliant on resource revenues."
There are two points worth making about this. First, by making this point, Premier Smith is simultaneously extolling the virtues of not scooping interest off the top of the Heritage Fund based on what it is today, and waxing enthusiastically that Alberta could be scooping lots of interest off the top in an alternative-world today in which the fund was much larger.
Second, in her theorizing, $250 billion would have been the size of the savings account after nearly five decades of reinvesting its earnings. It would translate that Alberta would need to commit to more aggressive savings if the province wanted to build up its fiscal cushion to that level in roughly half the time.
Nordic track
Smith's speech also notes that other oil-producing countries, notably Norway, have built up their sovereign wealth funds to far more massive levels to ease their dependence on oil revenues. It's a common enough practice among big-dreaming Albertans that there's a term for it: Norwailing.
Norway's fund has grown to $1.6 trillion US, but the differences between their wealth-building strategy and Alberta's are massive. The Scandinavian country has taxed their oil production at higher rates, and stashed nearly all that revenue away, and taxes its citizens and companies at higher rates to fund social programs.
In Lougheed's days, Alberta devoted a set portion of its oil royalties to the Heritage Fund, but that practice ended in the 1980s and hasn't been revived since. The UCP this year will devote a portion of budget surpluses to the fund, but that's just a plan to spend any money that happens to be leftover at year end.
The last premier to suggest reviving Lougheed's practice of stashing away part of resource revenues did so in another pre-budget premier's infomercial — the late Jim Prentice, in 2015. He encouraged Albertans to accept some short-term pain with higher income taxes and reined-in spending in exchange for a plan to eventually save half of annual resource revenues in the Heritage piggybank.
He was summarily turfed from office by a Notley NDP that vowed to reverse his spending restraint, and said little about savings.
Smith doesn't have to worry about that sort of quick punishment. In fact, she opted to appeal to Albertans' shorter-term interests in her pre-election budget last spring, hiking spending well beyond the rate of inflation plus population growth — a move that might have blunted NDP criticisms about shortchanging health and education.
However, her long-term commitment to a Heritage mega-fund will require, well, a commitment to saving rather than spending, and that discipline would have to extend into election season and beyond. If the electorate was entirely composed of economists, she might be fine.
But Albertans have tended to be not as savings-minded, which could explain why it's taken this many decades since Lougheed left for his legacy fund to nearly double its value.
'Let there be another boom...'
Near the video's end, Smith puts forth one reason for being unable to pass up saving again this time: "In my view, our province has one last shot at getting this right."
She mentions the global energy transition, although doesn't specify that it will lean the world away from Alberta's lucrative export product — in fact she predicts "an unprecedented and prolonged energy resource boom" in oil, gas and emission reduction technologies.
Even with that optimism, she suggests that the wealth of today and tomorrow will come in handy when the wealthy times may have passed.
Premiers in Alberta have long been advised along those lines. Danielle Smith bought airtime Wednesday to say she's listening.
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