General

Alberta’s not-so-renewable revenue

Colby Cosh on spending Alberta’s oil cash

Todd Korol/Reuters

Alberta premier Alison Redford has put her government in national headlines with news that the province, at a time of high oil prices and outstanding labour-market conditions, is going to finish with an enormous deficit for 2012-13. The actual shortfall for the first half of the year came to $1.3 billion, and the 12-month total might be more than $4 billion. Redford blames what she calls the “bitumen bubble.” Alberta has sometimes gotten into fiscal trouble because of the unpredictability of benchmark prices for oil, but this time it is getting crushed by poor regional prices as the U.S. Midwest transforms from needy buyer to massive seller.

Economists and pundits inside and outside Alberta have used the opportunity to repeat long-standing pleas for the province to make its public revenue less oil-dependent. Since oil is a “non-renewable resource” that can only be sold once, goes the theory, the province’s share shouldn’t be used to meet ongoing government expenses; the worthy thing to do is to set it aside and invest it.

I find aspects of this argument amusing. In the early ’70s everyone agreed that Alberta’s “non-renewable” conventional oil would be gone in a decade or so. Yet the trend was for the amount remaining to keep getting larger. Meanwhile, how’s Newfoundland making out with its hypothetically “renewable” cod biz?

Every “resource” is a mixture of matter and human labour: if we are going to sequester oil royalties, that means sequestering not just the value of the sold hydrocarbons, but the added value of the effort by present-day Albertans to find, extract, and, when it comes to tar sands oil, change it into something deliverable to refineries. Syncrude Ltd. is called “Syncrude” for a reason: it sells a product synthesized from nature’s materials, in the same way—in principle—that a chair is.

Even Albertans have some trouble understanding this. You can only sell a barrel of oil one time, once it’s in the actual barrel. But given the presence of hydrocarbons in a place, it is inherently likely to go through cycle after cycle of new exploration and increased efficiency. In essence there aren’t “renewable” and “non-renewable” resources; only less renewable and more renewable ones.

The idea of sequestering oil revenues is, I think, a subtle combination of utilitarian appeal and moral suasion. The government shouldn’t “squander” current flows of oil money, we hear; it should “save” virtuously for the future. The implied premise, interestingly, is that current government spending is “squandering” rather than “investment.” If it cannot be proper to expend precious oil revenue on current government programs, surely the capture and use of worker and investor income is equally unjustifiable? Our working lives are the ultimate non-renewable resource, no?

If you read credit reports on Alberta, you find that the raters take an interesting view of the Alberta government’s supposed abuse of oil revenues: namely, that the province is positioned to withstand an economic shock like the “bitumen bubble” precisely because it already used oil money to eliminate debt. Like a household that had run up a credit-card balance, Alberta chose not to pour windfall oil revenue into some investment apparatus like the Heritage Fund. It paid down the credit card. In this sense Albertans and their AAA-rated government are already living in a future benefiting from sound past stewardship.

I find myself wishing that economists would set aside quarrels over oil-revenue policy and help out with the practical corollary of a large deficit: chopping government spending. Alberta governments have invested plenty of energy in windbag futurological reports on what to do with oil surpluses. None has yet done what Ontario did: recruit one guy (star economist Don Drummond) to autopsy the budget and publicly identify areas of excessive fat. Premier Redford has been elliptical about what specifically needs doing about spending in the face of her “bitumen bubble.” Putting a Drummond to work wouldn’t cost much; heck, maybe Drummond is available!

He wouldn’t necessarily find it easy. Alberta already survived a generation of remorseless program-slashing, and it seems likely that high current spending is mostly a product not of specific boondoggles, but of all-around bad habits concerning public sector employee compensation. There are probably exceptions: Alberta’s alphabet soup of agriculture supports, to take one example, seems like a good candidate for economizing. But the tendency of premiers to bribe interest groups at politically sensitive moments might be the biggest problem of all, and no one has shown any appetite for tackling it.

For more Colby Cosh, visit his blog at macleans.ca/colbycosh

Looking for more?

Get the Best of Maclean's sent straight to your inbox. Sign up for news, commentary and analysis.
  • By signing up, you agree to our terms of use and privacy policy. You may unsubscribe at any time.