Saving for a rainy day

The tragedy of recent historic flooding in Southern Alberta has had a profound impact on us. As an Edmontonian who spends a good deal of time in Calgary, my heart goes out to those who have been affected. Encouragingly, the Alberta spirit lives on and Calgarians will demonstrate resiliency as the rest of us demonstrate high levels of empathy and community through giving in the ways that are available to us.  I have to give big kudos to Mayor Naheed Nenshi, Premier Alison Redford, Prime Minister Stephen Harper and all three levels of government who have been absolutely stellar in their response. These tragedies and struggles do emphasize the important role of government in acting as the vehicle through which we take collective action and in the value of the public service and public servants.

Recently, the Redford government announced that it would pledge an initial and immediate $1 Billion in aid with more to come. They also said that in doing this, the priority of a balanced budget would be set aside. They should be applauded for doing the right thing. We count on government (ie our neighbours) to be there for us on rainy days. But, talk of a balanced budget in this context made me think of where this money will come from, could come from and should come from. Wouldn't it be nice if we had a rainy day fund for such unforeseen instances?

Oh?! We do???

That's right. We have the Alberta Heritage Savings Trust Fund which sits at $16.8 billion. This is good. It could come in handy here, but with BMO estimating the costs of recovery in the $3-$5 billion range it would make a considerable dent in the fund. Unfortunately, the fund has not grown substantially in decades. The last systematic investment into the fund was made in 1987 and while the fund has generated $33.4 billion in total income, $34.6 billion has been transferred out of it largely to fund general programs. 

The Alberta fiscal formula is fundamentally flawed. Last year the government brought in $38.6 billion in revenues. Of that, $7.6 billion came from selling off non-renewable resources and $2.5 billion came from siphoning off investment earnings. At the same time they still spent $2.8 billion more than they raised which was drained out of another smaller more temporary rainy day fund, the Sustainability Fund. 

This all becomes a critical issue when you account for the fact that Alberta is the lowest taxed jurisdiction in Canada and could raise $11 billion more in taxes and maintain the lowest tax regime in the country. 

In simple terms, we are selling off the farm and dipping into our RRSPs in order to pay the bills just so we can take more time off work. 

As much as some would say debt is stealing from future generations, what we are doing amounts to grand larceny fraud against our great grandchildren. They should have a stake in both our non-renewable resources and our savings and in the meantime we should continue to contribute by paying our fair share. 

A fiscal prudent strategy would look like this. Instead of selling off non-renewable resources to fund programs we should treat it like a transfer from fixed assets to liquid but restricted assets. In other words, put all non-renewable resource revenue into the Heritage Fund. We should quit the vacation from responsibility and increase our taxes to the point where we collect the $11 billion more in revenue while maintaining our tax advantage. We should then quit using interest to fund general programs and instead use it for an endowment fund to help diversify our economy and train our people for the day the oil is gone. 

And when catastrophic flooding or fires occur again we sensibly and responsibly use the rainy day fund to pay for recovery... without guilt or regret because that is what we planned for all along.