Is Norwegian sovereign wealth fund model right for Alberta?

Greg Poelzer argues for Norwegian sovereign wealth fund for Canada, Max Fawcett says model won’t work

Should Canada and Alberta have Norwegian sovereign wealth fund style investments? In a new study, Saskatchewan academic Greg Poelzer argues in the affirmative, but energy journalist Max Fawcett tells Beacon Energy News that Alaska is the better model.

Norwegian sovereign wealth fund
Greg Poelzer, University of Saskatchewan. Photo: University of Saskatchewan.

Poelzer is the author of the recently released Macdonald-Laurier Institute report, “What Crisis? Global lessons from Norway for managing energy-based economies,” which makes the case that Canada should invest 100 per cent of its natural resource revenue into a type of Norwegian sovereign wealth fund – a set of government-owned and managed investments sourced through resource-related taxes and royalties.

“As a country, we have been poor fiscal stewards of our natural resource wealth”, Poelzer says.

“If Canada is to build stable, powerful and sustainable economies, and to secure our place as an energy and natural resource power globally, the federal government, the provinces and territories need to commit to building SWFs.”

According to Poelzer, 25 years ago, Norway created a sovereign wealth fund to capture its oil revenues and remove them from general government revenues, taking away the temptation for free-spending politicians to use an ephemeral benefit – revenue from natural resources – to plug holes in government budgets brought on by swings in the economy or over-spending.

Poelzer contrasts Norway with Alberta, which established a fund in the 1970s but declined to pay into it with the same zeal. The amount of contributions declined over time and were eventually stopped altogether in 1987. Norway’s fund is now worth $US890 billion, while Alberta’s is worth only about $17 billion.

“Norway shows that governments blessed with petroleum resources can build modern, stable, and prosperous economies on the bedrock of oil and gas”, says Poelzer.

Norwegian sovereign wealth fund
Max Fawcett, editor of Alberta Oil Magazine. Photo: Max Fawcett.

Max Fawcett is the editor of Alberta Oil Magazine. He says comparing Canada to Norway is a nonstarter given the level of taxation in the two jurisdictions. For instance, the Norwegian Value Added Tax is 25 per cent, with the exception of groceries, which is 15 per cent. Income tax rates are over 50 per cent.

“Norwegians are comfortable with substantially higher income taxes and substantially higher consumption taxes than Canadians would ever be,” he said in an interview. “And certainly than Albertans would ever be.”

Comparing Norway to Alberta is not fair to to the Canadian province because the Scandinavian country has all the fiscal tools and capacity that a nation state enjoys, but Alberta is a sub-national government, a sort of a middle man in Canadian confederation, argues Fawcett.

“Like most provinces, Alberta receives a lot of money from the federal government, but it is then obligated to pass almost all that money along to the municipalities,” he said.

Norwegian sovereign wealth fund
Alberta Premier Jim Prentice, responsible for managing provincial finances. Photo: Handout.

Another important issue is that the Alberta political culture precludes using even the few fiscal tools at the province’s disposal.

“Alberta doesn’t want to have a sales tax. It doesn’t want to have a progressive income tax,” said Fawcett. “It’s not that the conversation couldn’t happen, it’s just that it would be a very long distance to get from where we are in Alberta today to where Norway is.”

The better model for Alberta is the Alaska Permanent Fund, contends Fawcett, which was established in 1976 to invest 25 per cent of oil revenue for future generations. As of 2012, the Fund stood at $42 billion. Part of the Fund’s earnings are paid out as dividends to Alaskans. In 2014, the dividend was $1,884, though in other years it has been much less.

A portion of the Fund’s earnings are earmarked for government operating expenses.

The Fund provides Alaska with a buffer when oil royalty revenue drops, as it did in late 2014. And it keeps Alaska from having to dramatically slash spending every three or four years when the inevitable oil or gas price decline arrives.

“Watching what’s going on right now [in Alberta] it’s kind of embarrassing because it’s no way to run a government,” says Fawcett. “Where you’re constantly going from the penthouse to the outhouse and back again. You can’t make long term plans. You can’t make long term investments.”

As attractive as Poelzer’s sovereign wealth fund may appear to some, the provinces will never cede constitutional authority over resource revenue to Ottawa, says Fawcett. The Alaska Permanent Fund is the better option for Alberta and is something for which most of the infrastructure is already in place.

Now all Alberta politicians need is the will to do the right thing.

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