Advocacy

December 15, 2022

Report: Three big rocks for using Alberta’s surplus

A new report from the Business Council of Alberta recommends a three-pronged approach to allocate the province’s expected surpluses and set Alberta on a path to fiscal sustainability

CALGARY, Alberta—With a projected $12.3 billion surplus for this year and future years of surplus likely, Alberta is experiencing the most dramatic fiscal turnaround in Canadian history. A new report, released today by the Business Council of Alberta, recommends three priorities, or “big rocks” to use in allocating surpluses in a way that balances short-term opportunities and long-term sustainability.

These Three Big Rocks are:

Background

Driven by an increase in global oil prices, Alberta is expected to bring in an estimated $28 billion in non-renewable resource revenue this year, which is more than the previous six years combined—and more than double than our previous high in 2006. This has led to an expected $12.3 billion surplus with over $5 billion expected in each of the next two years.

“It is hard to overstate the magnitude of Alberta’s financial turnaround. In 2021, we were facing a $17 billion deficit and this year we will likely see a $12 billion surplus, with additional surpluses expected over the next two years,” says Adam Legge President of the Business Council of Alberta. “Oil and gas prices have put us once again at the top of the rollercoaster and given us money to work with. Like all previous times, we are faced with the decision of how to use future surpluses. The Three Big Rocks Formula does just that.”

Thus far, the provincial government has signaled a strong commitment to debt repayment with the anticipated surplus, alongside cost of living measures, and reinvestment of Heritage Fund earnings. With conditions still fluctuating, the final surplus this year is still unknown. We believe there is an opportunity to consider all three “big rocks” in provincial government priorities next year.

Surpluses can create big opportunities, but they can create big challenges, too.

Resource royalties have long been lucrative for the province. And as many oilsands projects reach their post-payout royalty rate, this will continue. However, Alberta has rarely been great at planning for its fiscal future over the long term, and our over-reliance on boom time royalties have created instability in provincial finances and a tendency to over-spend.

We must take steps to get off the rollercoaster of non-renewable resource revenue and transition Alberta to a stable and sustainable revenue model.

“These surpluses don’t change our fiscal realities. We still have a fiscal sustainability problem in Alberta, but we can use this opportunity to set ourselves on the right track,” says Legge. “We must ensure we use them thoughtfully with an eye to the future, and not locking in higher annual expenses. The formula enables Alberta to invest in its future, promote competitiveness and opportunity, and help make life better for all Albertans—now and the next generation.”

Priorities were evaluated based on how they align with the goal of transitioning to a stronger and more stable fiscal model and on a series of four principles including:

This paper is the second publication in the Business Council of Alberta’s series on fiscal sustainability. These recommendations are not exhaustive and do not exclusively set Alberta up for fiscal success on their own. Should large surpluses persist beyond two years into the future, the three big rocks will likely remain, but the allocation proposed in this paper should be re-evaluated and potentially adjusted. Additionally, the province still needs to consider how to reimagine its overall fiscal model to be stable and sustainable. In the next part of this series, we will explore options to re-imagine Alberta’s revenue model.

“In that most classic of Alberta sayings: we’ve been handed another boom, let’s not piss it away,” says Legge.

The full report, entitled “Three Big Rocks: Priorities for Managing Alberta’s Future Revenue Surpluses” can be downloaded at https://businesscouncilab.com/

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About the Business Council of Alberta. The Business Council of Alberta is a non-partisan, for-purpose organization dedicated to building a better Alberta within a more dynamic Canada. Composed of the chief executives and leading entrepreneurs of the province’s largest enterprises, Council members are proud to represent the majority of Alberta’s private sector investment, job creation, exports, and research and development. The Council is committed to working with leaders and stakeholders across Alberta and Canada in proposing bold and innovative public policy solutions and initiatives that will make life better for Albertans.

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