U of C economists:
Bolster Heritage Fund to maintain tax level

By Greg Harris

Three University of Calgary economists are calling on the next provincial government to revitalize the Heritage Savings and Trust Fund and to get out of the economic diversification business.

Their recommendations come in the first policy brief issued by the U of C’s newly formed Institute for Advanced Policy Research. The title of the paper is, Living on Borrowed Time: Alberta at the Crossroads.

“ Alberta’s economy is dependent on non-renewable resources, so when times are good it is vitally important that the government have a plan for reinvesting surplus revenue,” says Dr. Ken McKenzie, one of the paper’s authors and the director of IAPR. “We believe it is inappropriate for the province to tie spending to highly volatile royalty revenues; there are certain guiding principles that should be observed in managing public finances in a resource-based economy.”

The paper, which was co-written by Drs Ron Kneebone and M. Scott Taylor, makes several recommendations, including:

• The newly created Sustainability Fund should be maintained, but the cap on the fund should be indexed to inflation and population growth.
• At the very least, one-third of the non-renewable resource royalties collected by the province should be deposited in a revitalized Heritage Fund.
• The income from the revitalized Heritage Fund should be used to maintain low taxes, spend on health care in the future as the population ages, and invest in higher education.

“ Higher education may not have brought Alberta to where it is today, but it is required to ensure that it maintains this path into tomorrow,” the authors say. McKenzie adds that one of the key lessons of history is that diversifying Alberta’s economy is not necessary for maintaining or raising living standards, but ensuring technological progress in resource industries is.

The authors say the government has done some things well, such as paying down the debt, and others not so well, such as abandoning contributions to the Heritage Fund. “We are currently benefiting from the foresight of the Lougheed government in 1976,” the authors say. “Because of the Heritage Fund, the government has had an additional $1 billion to spend on health or education, which translates to two percentage points in the personal income tax rate.”

The IAPR was created to enhance public policy research by integrating scholarly knowledge with practical applications. The paper is available for download at www.iapr.ca.