CCPA report suggests a more hands-on approach from governments is required to develop Alberta's oil resources.
CALGARY—A new report has some advice for Canada when it comes to managing its oil wealth: be more like Norway.
The study from the Canadian Centre for Policy Alternatives calls for a more hands-on approach both provincially and federally toward developing the resource, divvying up its riches and reducing its environmental impacts.
“Right from the beginning in Norway, there was a consensus that the government had to be in the driver’s seat, both as an owner and as a regulator and it had to be involved in all aspects of the industry,” said Bruce Campbell, executive director of the group and the report’s author.
In Canada, it’s been much the opposite, with foreign and domestic private interests more or less in control since the start.
However, the Peter Lougheed government in Alberta did have a more active role in the industry in the 1970s, for example creating incentives for more petrochemical processing to be done in-province.
The report acknowledges the inherent differences between Norway and Canada—not the least of which is the decentralized nature of Canada, where provinces have control over resource development.
Nonetheless, Campbell said there are lessons to be learned from the Scandinavian country, which owns 80% of its petroleum production and retains about 85% of its net revenues.
“It doesn’t have to be the way that Canada and Alberta have chosen to go. There are alternatives and Norway points the way,” he said.
A striking difference between Norway and Alberta is the proportion of their respective oil wealth that has been socked away in savings funds.
Norway set up its Government Pension Fund Global in 1990. It is now the largest sovereign wealth fund in the world at $664 billion and continues to grow.
By contrast, the Alberta Heritage Savings Fund, set up by the Lougheed government in 1976, contains only about $16 billion.
The report calls on the federal government to create a resources saving fund, into which some proceeds from an excess profits tax would be placed. Part of that capital would be invested outside the country as a means to mitigate “Dutch Disease”—when resource development leads to a rise in currency values, harming other parts of the economy that rely on exports.
Campbell sees the returns of that fund being used for public infrastructure and social programs, as they are in Norway.
Jack Mintz, a tax policy expert at the University of Calgary, said Norway is viewed as the “poster child for good governance” and that the public has largely bought into its “disciplined approach.”
“The problem with Alberta is it’s never really done a good job in managing the natural resource wealth,” said Mintz. “The last 10 years is a good example, where government spending went up much faster than growth in the economy, so a lot of costs got built into the government’s budget line.”
Norway had very high taxes before oil was discovered there and, unlike Alberta, has opted to keep them that way.
Alberta’s taxes are the lowest in Canada and even though there is likely to be a stream of red ink in the March provincial budget, Premier Alison Redford has said not to expect higher taxes.
Mintz said he expects low natural gas prices and discounted oilsands crude to persist, so the budget squeeze won’t let up any time soon.
That leaves three choices—keep running up deficits and hope that things get better eventually, cut spending or raise taxes.