Department of Economics Institute for Public Economics1 A Government’s Natural Resource Revenue Quandary? or Whatever Happened to Alberta’s Heritage Savings.

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Presentation transcript:

Department of Economics Institute for Public Economics1 A Government’s Natural Resource Revenue Quandary? or Whatever Happened to Alberta’s Heritage Savings Trust Fund? by Melville McMillan Department of Economics University of Alberta for 32 nd USAEE/IAEE Conference Anchorage, Alaska July 28-August 31, 2013

Department of Economics Institute for Public Economics2 Some governments receive significant non-renewable natural resource revenues (NRRs). If so, the quandary is Spend all Save all or, how determine the optimal balance? And, how address NRR volatility? ?

Department of Economics Institute for Public Economics3 Alberta faced this problem in the early 1970s Established the Alberta Heritage Savings Trust Fund (AHSTF) in % of NRRs allocated to the AHSTF Investments in three divisions i) Alberta Investment Division ii) Capital Investment Division iii) Canada Investment Division Multi-purpose

Department of Economics Institute for Public Economics4

5

6 Major Savings Funds year established April 2013 value AHSTF 1976$16,800 million AHFMR (medical research) ,436 AHS (scholarships) AHSEREF (science & engineering) ACL (cancer research) ______________________ $20,382 million

Department of Economics Institute for Public Economics7 And there is the established in April 2013 value Sustainability Fund 2002 $2,774 (millions) down from $16,800 in forecast to be $691 in Aside AIMCO – the Alberta Investment Management Company (2008)

Department of Economics Institute for Public Economics8 At end of , NRR Savings = 11.8% of cumulative NRR Net Financial Assets = 9.9% of NRRs

Department of Economics Institute for Public Economics9 Saving, Dissaving and Debt too!

Department of Economics Institute for Public Economics10 Alberta has also made ad hoc cash disbursements: Energy Tax Refund (2000 and 2001) $300(total)/person 16+ at a cost of $690 million Resource Rebate (2006) $400 per capita (all ages) at a cost of $1,320 million And, Subsidized natural gas from 2000 to 2009 at a cost of $3.7 billion

Department of Economics Institute for Public Economics11 So, there has been a diverse use of NRRs Government operating and capital expenditures (and tax relief) Savings Endowments Rainy day fund Repay debt Direct subsidies Cash disbursements to citizens

Department of Economics Institute for Public Economics12 What has happened to the AHSTF? Withered to one-third of peak (real per capita) value.

Department of Economics Institute for Public Economics13 About 10%

Department of Economics Institute for Public Economics14 What’s Happening to the Sustainability Fund? Using in the bad times and the good?

Department of Economics Institute for Public Economics15 The Magnitude of NRRs in Alberta’s Public Finances

Department of Economics Institute for Public Economics16 The Changing Role of NRRs in Alberta’s Public Finances

Department of Economics Institute for Public Economics17

Department of Economics Institute for Public Economics18 Thoughts on the Utilization of NRRs From Outside the Provincial Government Dividends: Courchene & Melvin (1980), McMillan & Norrie (1980), Warrack (2007) Pension: McMillan (2002) Canada West Foundation (2005, 2006, 2007) – save 50% and a range of suggestions for expenditure/uses Fixed Deposit-Fixed Withdrawal Stabilization Fund: Landon & Smith (2010, 2013a, 2013b) (50% of annual NRRs deposited, 25% of assets withdrawn annually)

Department of Economics Institute for Public Economics19 Thoughts (continued)… Provincial Government Initiated The 1996 AHSTF reforms: To a financial investment fund Financial Management Commission (2002):  the Sustainability Fund (and Capital Account) Financial Investment and Planning Advisory Commission (2008) – increase savings ($100 million by 2030) Premier’s Council for Economic Strategy (2011) -- increase savings, transformative investments

Department of Economics Institute for Public Economics20 And, Budget 2013 (plan): Restore $5 billion balance to the Contingency Account/Sustainability Fund AHSTF retain all (net) investment income (by ) Deposit up to 50% of NRRs in the AHSTF (5%-50% depending on the level of NRRs) But, the purpose of the additional savings in the AHSTF is yet to be specified.

Department of Economics Institute for Public Economics21 Obviously, after 40 years, Alberta’s NRR utilization policy remains a work in progress.

Department of Economics Institute for Public Economics22 Thank you.

Department of Economics Institute for Public Economics23