Guest Comment: Alberta Continues its Resource Revenue Roller Coaster Ride

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With its new budget tabled Thursday, the Kenney government bought another ticket to the resource revenue roller coaster.

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The budget says the government will use the recent rebound in resource revenues, which include natural gas and oil royalties, to balance the budget in the near term and avoid addressing Alberta’s underlying fiscal issues in the long run. term.

First, a little background.

For decades, successive governments have increased spending when resource revenues are relatively high and the province is running surpluses.

However, these surpluses inevitably turn into deficits when resource revenues decline.

This cycle of budget ups and downs is the roller coaster of resource revenues.

Right now we are on an upward trajectory.

According to the new budget, supported by the rebound in energy prices, total revenues will be $62.6 billion in 2022/23, up $15.2 billion from last year’s forecast in the budget. 2021.

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Resource revenues will be $9.1 billion higher in 2022-23 than forecast last year.

And relatively high resource revenues are expected to continue for the next few years.

Again, the Kenney government chose to use the rebound in resource revenues to balance the budget in the near term.

But this strategy has consequences since provincial finances will remain vulnerable to fluctuations in commodity prices.

In other words, the improvement in the province’s fiscal position will only last as long as resource revenues remain relatively high.

So what is the alternative?

The answer is twofold.

First, the government could create an inclement weather account to stabilize the level of resource revenues in the budget by reinstating the defunct Alberta Sustainability Fund (ASF), which was introduced in 2003 but eliminated in 2013.

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The fund set an amount of resource revenue that the province could spend each year.

The logic was simple: save resource revenue above the set amount during good times and use the savings to cover the shortfall during bad times to provide a stable amount to the annual budget.

This hard days count would mitigate the boom and bust cycle of provincial finances.

In addition to dealing with near-term volatility, the Province must also prepare for a potential permanent decline in resource revenues in the future, which has become increasingly likely given recent federal regulatory changes that will limit the energy industry.

In Budget 2022, the government promises to save a portion of future Legacy Fund surpluses, but is sticking to it: a promise.

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Contributions to the Legacy Fund will be important in turning one-time resource revenues into a permanent financial asset that can provide an ongoing stream of income.

The Kenney government’s 2022 budget shows an improving short-term fiscal outlook, but as long as we stay on the resource revenue roller coaster, we’re headed for trouble — eventually.

Creating and funding a rainy day account with resource windfalls, and requiring mandatory contributions to the Heritage Fund, would help stabilize long-term finances in Alberta.

Tegan Hill is an economist at the Fraser Institute.

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