Thursday, August 27, 2009

THIS is why natural resource revenue should be kept out of the general coffers.

The CBC is reporting that Alberta's budget deficit for this fiscal year will be 6.9 billion dollars. For those of you who are generally unfamiliar with the Canadian situation provincially, Alberta for the last decade was considered the darling of provincial financial situations. The booming oil and natural gas industry gave Alberta a strong, powerful economy that the government tapped for gain.

The money was directly shunted into the government. As a result, Alberta became a province without a debt, and a province without sales taxes. In fact, Alberta became the least taxed province in Canada, with an assumption that this state of affairs would always continue. The overage in government spending was placed into a sustainability fund, and some of it was given back to the people. Overall, it seemed like a good arrangement.

One year of a bad market for oil and natural gas has eaten up almost half of the sustainability fund. While Alberta can continue to operate at its normal pace this year, the simple fact is that by relying on natural resources for revenue, there is no substitute for that amount of money. Jobs did not magically appear in Alberta due to lower taxes but due to the resources. It's really a running example of how "trickle-down" doesn't work. Economies are based on realities like resources and factories, not taxes.

As an example how much money Alberta lost, check out this article from last year, exactly one year before the previous article I mentioned. Alberta went from an 8.5 billion dollar surplus to a 6.9 billion dollar deficit, a total swing of $15.4 billion. That's a huge amount of money to lose just because the gas market didn't work out for you.

Nova Scotia had a similar debate about natural resources. John Hamm wanted to put the natural resources money directly on the debt. It was his reasoning that we can't count on the natural resources at any time, so it should be used entirely for relieving the government of the debt burden. By doing so, it would free up money from interest payments, allowing the government to have more revenue for whatever it wanted to do.

"Rocket" Rodney MacDonald changed that and shunted our resource money into general revenue to pay for his various schemes. The end result is that we're in the same position Alberta is now in - we're facing a huge deficit because we relied upon natural gas money that has dried up. Unlike Alberta, we're a province that is already heavily in debt, and we don't have a backup fund.

I wish politicians would look to the future. Rodney MacDonald has retired in disgrace, and I say good-fucking-riddance. He'll likely be considered one of the worst premieres Nova Scotia ever had, and honestly, it's well earned.


Perun said...

Only that Alberta can recover. Two good years on the oil/gas market and the money is back in, and the government will consider keeping some taxes and creating new economic fields and become even richer.

Veritas said...

What happens when the oil dries up?

Perun said...

Well, when *would* that happen?

Veritas said...

10 years or so, according to current estimates.

Post a Comment