Resource revenue needs careful handling
BY DON CAYO, VANCOUVER SUNOCTOBER 12, 2013 http://www.vancouversun.com/business/Resource+revenue+needs+careful+handling/9030637/story.html 'As long as we continue to sell our natural assets to pay for today's needs, our future prosperity will be in doubt," says Michael Holden, senior economist at the Canada West Foundation, in a recently released report on non-renewable resource revenues. Holden is talking about Alberta, a more prosperous province than British Columbia, but he could easily make the same case about us. "I just haven't got around to B.C. yet," he quipped when I asked. Of course, annual resource revenues in both B.C. and Alberta ride the roller-coaster of global prices. Thanks first to softening of demand caused by the 2008 recession and then new competition from U.S. shale gas, the price of natural gas - the major resource revenue contributor for B.C. and a significant one for Alberta - has been hovering at a quarter to a third of what it was five years ago. And it can dip or rebound as much as 10 per cent in the space of just a month. The result is that the B.C. government expects about $2.5 billion in resource revenue this year, little more than half what it got in the middle of the last decade. Meanwhile, the Alberta treasury took in $7.6 billion last year - which was a very bad year that met only about two-thirds of expectations. The ethical decision concerning what to do with the money is a no-brainer for both provinces. When non-renewable resources are harvested - whether petroleum or mineral - today's generation is effectively selling off a public asset that is no longer available to future generations. The least we should do is set some of the money aside to compensate, and to ensure those generations have the means to make their own policy decisions that they think are right for their times. But politics interferes mightily. B.C.'s politicians of all stripes have never been able to keep their hands off this windfall, and Alberta's are only a bit better. In the mid-1970s, Alberta did create a Heritage Fund with several billions set aside by Peter Lougheed's government. However, subsequent administrations have been at least as prone to raid this savings account as to add to it. Holden thinks B.C.'s weaker financial position might be an advantage if our politicians ever try to build a case for saving some of the money, not spending it all. The Alberta government has already caved to many of the myriad pressures to spend more, so it would now have to scale back services if it were to set more money aside, he said. B.C. hasn't had so much to spend, so it would have fewer entrenched - and wellfunded - interests to placate. "It's the difference between telling your kid that he can't have a lollipop versus taking away the one in his hand," he said. Holden also suggested B.C. could learn a couple of valuable lessons from Alberta's mistakes, if or when we decide to stop using money from the sale of irreplaceable assets for day-today expenses. One is to have from the outset a clear understanding of what the money is for. Alberta has been all over the map on this - it's a rainy-day fund; it's a pot of money to use for development; it's money to fund special programs, and on and on. This lack of clarity has made it much easier for politicians to justify dipping into it. To guard even more vigorously against this possibility, or probability, Holden said, B.C. should also adopt a rules-based system that spells out exactly when money can or can't be taken from the fund. My own view is that, unfortunately, all this is hypothetical, and will remain so unless or until there is a groundswell of public support for the idea. I won't hold my breath waiting for our politicians to voluntarily leave 10 unspent cents in the till, let alone put their hands up to their own spending power. dc...@vancouversun.com
