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by Melville McMillan Department of Economics University of Alberta for

A Government’s Natural Resource Revenue Quandary? or Whatever Happened to Alberta’s Heritage Savings Trust Fund?. by Melville McMillan Department of Economics University of Alberta for 32 nd USAEE/IAEE Conference Anchorage, Alaska July 28-August 31, 2013.

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by Melville McMillan Department of Economics University of Alberta for

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  1. A Government’s Natural Resource Revenue Quandary?orWhatever Happened to Alberta’s Heritage Savings Trust Fund? by Melville McMillan Department of Economics University of Alberta for 32nd USAEE/IAEE Conference Anchorage, Alaska July 28-August 31, 2013 Department of Economics Institute for Public Economics

  2. Some governments receive significant non-renewable natural resource revenues (NRRs). If so, the quandary is Spend all -------------------------- Save all or, how determine the optimal balance? And, how address NRR volatility? ? Department of Economics Institute for Public Economics

  3. Alberta faced this problem in the early 1970s • Established the Alberta Heritage Savings Trust Fund (AHSTF) in 1976 • 30% of NRRs allocated to the AHSTF • Investments in three divisions • i) Alberta Investment Division • ii) Capital Investment Division • iii) Canada Investment Division • Multi-purpose Department of Economics Institute for Public Economics

  4. Department of Economics Institute for Public Economics

  5. Department of Economics Institute for Public Economics

  6. Major Savings Funds year established April 2013 value AHSTF 1976 $16,800 million AHFMR (medical research) 1980 1,436 AHS (scholarships) 1980 820 AHSEREF(science & engineering) 2000 826 ACL (cancer research) 2006 500 ______________________ $20,382 million Department of Economics Institute for Public Economics

  7. And there is the • established in April 2013 value • Sustainability Fund 2002 $2,774 • (millions) • down from $16,800 in 2008-09 • forecast to be $691 in 2013-14 • Aside • AIMCO – the Alberta Investment Management Company (2008) Department of Economics Institute for Public Economics

  8. At end of 2012-13, NRR Savings = 11.8% of cumulative NRR Net Financial Assets = 9.9% of NRRs Department of Economics Institute for Public Economics

  9. Saving, Dissaving and Debt too! Department of Economics Institute for Public Economics

  10. Alberta has also made ad hoc • cash disbursements: • Energy Tax Refund (2000 and 2001) • $300(total)/person 16+ at a cost of $690 million • Resource Rebate (2006) • $400 per capita (all ages) at a cost of $1,320 million • And, • Subsidized natural gas • from 2000 to 2009 at a cost of $3.7 billion Department of Economics Institute for Public Economics

  11. So, there has been a diverse use of NRRs • Government operating and capital expenditures (and tax relief) • Savings • Endowments • Rainy day fund • Repay debt • Direct subsidies • Cash disbursements to citizens Department of Economics Institute for Public Economics

  12. What has happened to the AHSTF? Withered to one-third of peak (real per capita) value. Department of Economics Institute for Public Economics

  13. About 10% Department of Economics Institute for Public Economics

  14. What’s Happening to the Sustainability Fund? Using in the bad times and the good? Department of Economics Institute for Public Economics

  15. The Magnitude of NRRs in Alberta’s Public Finances Department of Economics Institute for Public Economics

  16. The Changing Role of NRRs in Alberta’s Public Finances Department of Economics Institute for Public Economics

  17. Department of Economics Institute for Public Economics

  18. Thoughts on the Utilization of NRRs • From Outside the Provincial Government • Dividends:Courchene & Melvin (1980), McMillan & Norrie (1980), Warrack (2007) • Pension: McMillan (2002) • Canada West Foundation (2005, 2006, 2007) – save 50% and a range of suggestions for expenditure/uses • Fixed Deposit-Fixed Withdrawal Stabilization Fund: • Landon & Smith (2010, 2013a, 2013b) • (50% of annual NRRs deposited, 25% of assets withdrawn annually) Department of Economics Institute for Public Economics

  19. Thoughts (continued)… • Provincial Government Initiated • The 1996 AHSTF reforms: To a financial investment fund • Financial Management Commission (2002): •  the Sustainability Fund (and Capital Account) • Financial Investment and Planning Advisory Commission (2008) – increase savings ($100 million by 2030) • Premier’s Council for Economic Strategy (2011) • -- increase savings, transformative investments Department of Economics Institute for Public Economics

  20. And, • Budget 2013 (plan): • Restore $5 billion balance to the Contingency Account/Sustainability Fund • AHSTF retain all (net) investment income (by 2015-16) • Deposit up to 50% of NRRs in the AHSTF (5%-50% depending on the level of NRRs) • But, the purpose of the additional savings in the AHSTF is yet to be specified. Department of Economics Institute for Public Economics

  21. Obviously, after 40 years, Alberta’s NRR utilization policy remains a work in progress. Department of Economics Institute for Public Economics

  22. Thank you. Department of Economics Institute for Public Economics

  23. Department of Economics Institute for Public Economics

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