Comparing the Alberta Heritage Fund to Alaska’s Permanent Fund

The following information was provided by John Carpay, Alberta Director of Canadian Taxpayers Federation

Let’s compare the Alberta Heritage Fund to Alaska’s Permanent Fund

Alaskans pay no sales or income tax. And that's not all. Since 1982, Alaskans are paid annual dividends based on the state's oil wealth. In 2000, a cheque for $1963.68 (US) was paid out to each man, woman and child in Alaska - tax free. How do they do it? Alaska started its Permanent Fund in 1976 to provide future generations with income for when the state would run out of oil. Alaskan law requires at least 50% of oil royalties to go into the Fund, which is now worth over $27 billion US, or roughly $40 billion Canadian. The value of the Fund's assets has never been eroded by inflation, because each year the Fund reinvests a portion of its earnings back into principal. This "inflation-proofing" is required by Alaskan law. The Fund's investment strategies are also established by law, not by the government of the day. The Fund is not controlled by the Alaskan government. Instead, it is managed as a separate trust by the Alaska Permanent Fund Corporation, an agency at arm's length from the government. Politicians have no access to the Fund, or discretion over the annual income it produces.Changes to laws governing the Fund require the approval of Alaskans in a state-wide referendum. Alaskans are protected from the severe and unpredictable changes in oil prices. And when Alaska runs out of oil, the Fund will continue producing income for future generations. Like it's Alaskan counterpart, Alberta's Heritage Fund was also started in 1976, as a means to "save for a rainy day." Although Alberta has five times as many people as Alaska, the Heritage Fund is worth $12.3 billion, in contrast to Alaska's $40 billion. The Heritage Fund's annual income (approximately $1 billion) goes into the government's general revenues, for education, infrastructure and health care. The Heritage Fund is managed by the Provincial Treasurer. The government of the day has discretion to spend portions of the Fund's principal. Alberta's laws governing the Fund can be changed by politicians at any time, without obtaining the approval of Albertans in a referendum. Unlike mandatory "inflation-proofing" in Alaska, there is no absolute requirement in Alberta that a portion of the Fund's earnings be returned to principal. As a result, the Fund in real terms is worth less today than in 1987. Over the years, politicians have spent Heritage Fund income on projects and Crown corporations in the name of "economic diversification," according to a "government knows best" philosophy. Alberta's resources are owned by the people of Alberta, but the Fund is set up as a government asset, controlled by government. The Fund does not protect Albertans from sudden and extreme changes in oil prices. Its assets are not large enough to provide Albertans with substantial income for when our province runs out of oil and gas. But it's not too late to learn from the Alaskan experience and build Alberta's Heritage Fund into a source of stable revenue for future generations. According to University of Calgary economist Jean-Francois Wen, if government controls its spending and puts 50% of oil and gas revenues into the Fund, the Fund could grow to $55 billion by 2015. By then, the Fund would produce enough income to replace what the government takes from Albertans in personal income tax. Now that is a legacy worth building. --------------------------------------------------------------------------------------The above information was provided by John Carpay, Alberta Director of Canadian Taxpayers Federation. It can be viewed at their Web Site http://www.taxpayer.com/ltts/ab/March2-01.htm