For each dollar oil prices increase, the Saskatchewan government collects roughly $16 million in extra revenue. With oil reaching $95 per barrel, that could mean about $560 million extra flowing into government coffers this year.
Most Saskatchewanians understand this simple rule: when times are good, save for the future. The provincial government needs to do the same with the province's resource wealth.
And while Saskatchewanians might use a TFSA or an RRSP to save money for the future, for governments that savings account is a resource-revenues heritage fund.
How a Heritage Fund Works
When revenues for oil, potash, and other non-renewable resources spike, the provincial government invests a portion of the windfall in a heritage fund for future generations. Saving those revenues in a heritage fund is just like saving for retirement. Resource revenues won't last forever. You can't work forever either. You must save money today to make sure your future is secure.
The Saskatchewan government knows this because that's exactly what it was told to do. Former University of Saskatchewan president Peter MacKinnon wrote a report for the government that recommended the Saskatchewan government create a heritage fund.
“A permanent savings account in the form of a (heritage fund) could turn our one-time revenue from these resources into a lasting source of wealth for Saskatchewan people,” MacKinnon said.
The government received that report in 2013. It never started the fund.
The Cost of Inaction
If the government had followed that recommendation and started a heritage fund based on MacKinnon's plan, it would be worth about $4 billion today, putting aside debt repayment. That fund would generate about $199 million interest income every year, assuming a conservative five per cent annual investment return. That's the cost of ignoring the advice it received more than a decade ago.
Instead, the government spent every windfall, borrowed through every downturn, and increased the provincial debt by 364 per cent since 2013.
Examples from Elsewhere
Governments that saved are reaping the rewards. Norway and Alaska both have successful heritage funds. Norway's fund is worth more than $3.2 trillion. Money generated from it now covers about 20 per cent of Norway's budget every year. Each eligible Alaskan received $1,000 in a dividend from its fund last year.
Next door, Alberta Premier Danielle Smith plans to grow Alberta's heritage fund to at least $250 billion by 2050. The fund is currently worth about $31.9 billion.
“We owe it to future generations of Albertans,” said Smith. “The new heritage fund will lessen our dependence on natural resource revenues, diversify our economy and create both wealth and prosperity for generations to come.”
Premier Scott Moe owes the same to future generations of Saskatchewanians. And he says the right things.
