The Saskatchewan government desperately needs a debt repayment plan. A heritage fund is that plan
Good times don’t last forever.
Farmers know when you have a bumper crop, you pay down debt and put some away for a dry year. The government needs to learn this lesson.
Saskatchewan is experiencing a boom. Last year, resource revenues were $1.6 billion higher than expected. The budget projects resource revenues at $3.3 billion this year. Both years are record highs for the last decade.
The resource revenue boom is allowing the government to pay down $1 billion of debt. And that’s a good thing.
But after this year, the government is planning to borrow $4 billion more by 2027.
|Eye on Saskatchewan
Saskatchewan has been down this road before.
Former Premier Brad Wall had a goal of leaving Saskatchewan debt-free. In 2009, the Wall government paid down more debt than any previous government. But then the government started borrowing again. In the years since, the debt has increased by over 300 per cent.
Praying for booms to last forever isn’t a prudent budget plan.
A serious plan would include a concrete plan to pay down debt and save non-renewable resource revenues.
That first step is essential.
The big debt payments in recent budgets are important. But a family doesn’t pay down a mortgage by putting the occasional bonus against the principal. Families pay down mortgages every … single … month. The Saskatchewan government desperately needs a debt repayment plan.
And that leads to the second step.
The government needs to finally establish an independent heritage fund where the government is required to deposit non-renewable resource revenues.
Former premier Allan Blakeney actually set up a heritage fund in 1978. But the lack of protections made it easy for politicians to raid the fund. It was shut down in 1992.
The Lougheed government in Alberta also established its heritage fund in the late 1970s. Initially, the government invested $2.2 billion into the fund and planned to deposit 30 per cent of resource revenues into it annually. But politicians refused to commit to saving and stopped depositing into the fund after 1987. When the Alberta government stopped the deposits, the fund was worth $28 billion. The current value of the heritage fund is only $18.6 billion.
Saskatchewan and Alberta’s histories provide good examples of what not to do. Fortunately for Premier Scott Moe, there are successful case studies to copy.
Norway deposits 100 per cent of its oil revenues into its savings fund. And despite being created two years before the government of Saskatchewan shut down its heritage fund, Norway’s fund is currently worth more than $1.8 trillion.
In the late 1960s, Alaska established its Permanent Fund. Politicians must invest at least 25 per cent of resource revenues into the fund and aren’t allowed to touch the principal. Politicians can only spend the interest. Alaska’s fund has grown to more than $100 billion. In 2022, each Alaskan received a dividend of $2,622 from the fund.
In 2013, Wall’s government commissioned a report about heritage funds. The report recommended the creation of a new heritage fund for Saskatchewan. The government failed to act, and the report has been gathering dust ever since.
If the Saskatchewan government had re-started the Saskatchewan heritage fund 10 years ago and followed Alaska’s example, it would be valued at $6.1 billion today. Assuming a five per cent return, the fund would generate $303 million in interest annually. That interest income could be used to help pay down the debt or pay for another brand-new children’s hospital every year.
Instead, the Saskatchewan government has been spending resource revenues as fast as they come in. It’s raised the PST. And, despite some ad hoc debt repayments, the debt has soared and it’s set to soar even higher next year.
History shows that the Saskatchewan government needs a plan. A heritage fund is that plan.
Gage Haubrich is the Prairie Director for the Canadian Taxpayers Federation.
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