• Long-term goal should be to put all royalties into wealth fund
  • Premier says fund should not be used as short-term cash grab

If Premier Rachel Notley has her way, Alberta’s reliance on oil and natural gas royalties to fund its annual budget will end.

That would be a significant departure for a Canadian province that as recently as last year relied on the royalties to fund almost a third of operational expenditures on schools, hospitals and roads. Getting to a point where it all goes into the province’s wealth fund will take years, she said.

“We rely a good deal on royalties and that’s grown over the years,” Notley said Wednesday in an interview at Bloomberg headquarters in New York. “To phase out of that can’t be done overnight, but certainly in the long term we think that that’s what we need to be able to do because that gives the government more security, more predictability, more sustainability in terms of our services, and we’re not held hostage to international commodity prices.”

Notley, facing an economy in recession, has increased taxes for high income earners and corporations to help close the revenue gap created by lower crude prices rather than impose drastic spending cuts. The contribution of royalty revenue to the budget has fallen by about 70 percent with the drop in oil prices, she said.

Sales Tax

Alberta, with no net debt, is the only province without a sales tax in Canada and Notley’s government has no plans to introduce one, she said. Even with the tax increases, the province still has one of the lowest tax rates in the country.

“Clearly the Alberta economy is in a difficult position and the key industry is having problems,” said Warren Lovely, managing director at National Bank of Canada. “But there’s no other province that possesses as much fiscal flexibility as Alberta. They have a tremendous ability to raise revenue if they need to.”

Alberta is reviewing the current policy of royalty payments that oil and gas producers pay the government. Any changes to the system will be made “very carefully and cautiously” with the intention of adding revenue to the Heritage Fund, as the province’s wealth fund is known, Notley said.

“Whatever change does come, the idea is not to use that as a short-term cash grab to deal with our operating budget,” she said. “The Heritage Trust Fund is the appropriate repository for royalties.”

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