Saskatchewan, a province rich in natural resources such as oil, potash and uranium, is looking at ways to save its one-time revenue from these sources for future generations.
Premier of Saskatchewan Brad Wall asked former University of Saskatchewan president Peter MacKinnon in October of 2012 to research the possibilities of the province having a fund that channels revenues from non-renewable resources into savings for future generations as part of the government’s Plan for Growth: Vision 2020 and Beyond.
MacKinnon presented his report to Wall on Nov. 12 and said it was met with positive responses.
Wall has “been thinking about the issue and wants to take account of it,” MacKinnon said. “His response was very open and thoughtful and he said that by the time budget 2014 rolls around, he hopes to have a sense of what he wants to do about this.”
MacKinnon reviewed more than 60 non-renewable resource revenue funds from across the globe including models from Alberta, Alaska and Norway as well as the the old Saskatchewan Heritage Fund that was established in 1978 and ended in 1992.
The Futures Fund Report outlines its necessity as stemming from the annual variability in non-renewable resource revenues and the need to support future generations.
The intention of the Futures Fund Report is to cap off the province’s growing dependency on natural resource revenues. Presently, these funds account for approximately 26 per cent of total provincial revenue.
MacKinnon said he warns the province of becoming too dependant on revenues that one day may not be available.
“We do not become more dependant upon these one-time resource revenues than we already are,” MacKinnon said. “I don’t recommend taking those out of the budgets, but what I have recommended is that we freeze the reliance on them at present levels.”
The report reads that “the concept is a futures fund — not a rainy day fund, a reserve to be tapped opportunistically, to a source of money to finance projects in Saskatchewan in the absence of capital and operating commitments to pay for them.”
MacKinnon said the purpose of his recommendation is to shift Saskatchewan away from resource depletion and towards resource conversion.
Presently, non-renewable resource revenue is used to pay off debt, grow the economy, build core infrastructure and fund health care, education and other programs.
The report suggests three ways that the Futures Fund could be put into place using excess non-renewable resource revenues. The first option has the revenues paying off debt fully and then being allocated into the fund. Debt reduction and the Futures Fund would each receive 50 per cent of revenues in the second model. The third alternative requires a 2014 budget allocation of $100 million from the provincial government to launch the fund.
MacKinnon said he had no personal preference for any of the three options.
“What I do suggest, though, is that the cap should be in place as of 2014. And we would go from there to hopefully see the fund established, whether it is alternative one, two or three — whichever one is the most practical at this time,” MacKinnon said.
The fund would require a board of directors, chosen based on their qualifications, that is separate from government and a chief executive director appointed by the board.
Before the fund becomes a reality, the targeted investments must be decided along with the scope — whether or not they are international, while still being out-of-province.
These recommendations are based on Norway’s Government Pension Fund Global, where 100 per cent of natural resource revenues are invested abroad to protect the domestic non-oil economy from fluctuations in revenue. Norway’s fund was established in 1990 and is currently valued at approximately $740 billion.
“The idea is we have this fund and it is available and the resource revenues hopefully will be available to the province for whatever is seemed as the most pressing need of the future,” MacKinnon said.
MacKinnon also recommended that investment returns be split between provincial operating expenses and inflation protection while extra revenue be deposited into the general revenue fund and any unallocated investments be put into the Futures Fund.
To guarantee positive response from the Saskatchewan population, the report gives a recommendation to publish annual and quarterly reports to ensure transparency and trust.
The Future Fund Report indicates the importance of the creation of the fund being a duty to the province of Saskatchewan.
“However, if it is not too late to take a deliberate approach to the subject, it is not too early either. Our province is among the most favoured places on earth in terms of non-renewable resources available now and in the foreseeable future,” MacKinnon wrote in the report.
“We have a responsibility as well as an opportunity to consider what this means to us and to those who come after us, and to prepare well for the future of all.”
Photo: Raisa Pezderic