Commentary: It’s Time to Get Off the Resource Revenue Rollercoaster: Re-establishing the Alberta Sustainability Fund

 

Summary

• Alberta’s volatile resource revenues are fuelling its ongoing fiscal problem. The provincial government typically includes all resource revenue in its budget. When resource revenue is relatively high, the province enjoys budget surpluses but faces pressure to increase spending; when resource revenues drop, spending remains high and the province turns to deficits.
• Despite efforts to better manage Alberta’s finances, the Smith government is largely repeating past mistakes by increasing spending during a period of relatively high resource revenue.
• In the 2022 mid-year update, the Smith government increased the plan for nominal program spending from Budget 2022 every year from 2022/23 through 2024/25 for a cumulative increase of $5.9 billion. In Budget 2023, the Smith government increased the plan further with a cumulative increase of $10.1 billion from 2022/23 through 2024/25 compared to the 2022 mid-year update.
• Rather than spend all of the resource revenue in years when it is relatively high, the Alberta government should use this opportunity to stabilize provincial finances over the long-term by re-introducing a rainy-day account based on the earlier Alberta Sustainability Fund (ASF).
• To do so, it would limit the resource revenue included the budget to a stable amount, thereby limiting the amount of money available for annual spending. Any resource revenue above the set stable amount would be automatically saved in the ASF to be withdrawn to maintain that stable amount in years with relatively low resource revenue. The government could implement the ASF while maintaining a balanced budget and without an annual reduction in nominal spending.
• Based on 2023 budget projections, with spending restraint, the provincial government could re-introduce an ASF worth $9.8 billion by 2025/26.

Authors:

Tegan Hill

Associate Director, Alberta Policy, Fraser Institute

Milagros Palacios

Director, Addington Centre for Measurement, Fraser Institute

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