March 31, 2012
JUST THE FACTS: Remington on Wildrose’s Heritage Fund Projections
Today, Robert Remington wrote a column criticizing Wildrose for being too ambitious in its goal of growing the Heritage Fund to $200 billion in 20 years. While he makes a fair point that committing to a rule of not increasing spending beyond the rate of inflation and population can be difficult some years, there are also some misleading statements in the column that need to be clarified.
Claim: Remington quotes the following, apparently devastating, calculation from a political blog: a Wildrose government “would need to run a $18-billion surplus each year” which would require “a $223 per barrel price of oil.”
FACT: This quote assumes that we would fall into the same devastating trap the PCs have: namely, ignoring the power of compound interest. The PCs cover inflation in the fund, and then skim the rest of interest from it every year (as much as $2 billion). They call this money “investment income” and spend it as general revenues. Had the blogger looked at the long term forecast in our pledge (available at www.wildrose.ca/pledge), he would have seen that Wildrose has committed to leaving the interest in the fund each year, and has used a conservative 5% long term rate of return. This is a key part of substantially growing the fund.
Claim: Remington asserts that “Surpluses would have to come from higher oil and gas prices or spending cuts.”
FACT: For the next 20 years, no one doubts that revenues from our oil sands will grow substantially because of increased production and global demand. Revenues will also grow because of our strong economy generating a growing amount of taxes. In the short-term, there are also numerous oil sands projects reaching “payout,” which means capital costs have been recouped and the full royalty rate kicks in. The PC government’s projections are that revenues will rise 20%, or $9 billion, in the next two years alone. We have said these are overly optimistic, and so our estimates have actually reduced these projections to a more realistic 7.5% each year ($6 billion). We then scale revenue increase projections down to 5% in the long term. Of course, we are not predicting that revenue will increase 5% every year, only that this is a reasonable long-term average, which it is. (The rate over the last 15 years has been about 6%). Rather than cut programs, we project 3.9% annual increases to spending over the long term. Surpluses will come from restraining spending increases and not falling into the habit of spending money just because we have it. Wildrose will resist this temptation where the PCs have not.
Claim: Remington quotes Jack Mintz, who acknowledges that our math is solid, and does not question these projections. He does reasonably wonder whether Wildrose have the discipline to keep revenue increases at the rate of inflation and population growth over the long term.
FACT: Alberta currently spends far more per capita than other major provinces. The current government has been unable to prioritize needs over wants, instead running continual deficits despite a recovered economy and high resource revenues. Wildrose will use part of the surpluses to boost municipal funding, and will always ensure that the front-line needs of Albertans are well-funded. By simply eliminating pet projects like carbon capture and MLA offices, and foregoing wants in years when all we can afford is covering our needs, Wildrose believes Albertans will be very supportive of bringing fiscal prudence back to their government.
Claim: Remington suggests that the Wildrose fiscal commitment will mean that health and education will suffer.
FACT: In both the previous Wildrose alternative budget proposals, we balanced the budget while increasing spending on core services like health and education. It is quite a stretch to think that a Wildrose government would make the health and education systems that Albertans rely on suffer just to meet a long-term Heritage Fund goal. Wildrose stands for free enterprise, less government, increased personal freedom, and democracy.