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Jim Prentice unveils plan to break Alberta’s oil ‘addiction’

Jim Prentice just left his impression on Alberta.

In a televised address to the province Tuesday evening, the Premier announced a 10-year plan to wean the oil-rich province off what he called its “addiction” to energy revenues. To be formally released on Thursday along with his first budget, Prentice's plan comes barely six months into his tenure as Premier, yet it represents one of the most ambitious savings strategies to be attempted in generations.

HEALTH CARE PREMIUMS

A sales tax will not be part of the plan and Prentice stressed Alberta “will still have the lowest taxes in Canada.” He made no mention of widely expected changes to the province's flat 10 percent tax on personal income, though he did hint at the reintroduction of a health care levy, noting Albertans “will begin to contribute directly to the costs of the health care system.”

Alberta stopped charging health care premiums in 2009. They cost roughly $1,000 per family and $500 per individual, bringing in roughly $1-billion annually to the provincial treasury. Both Prentice and Finance Minister Robin Campbell have suggested in recent weeks any new health care levy will likely not resemble the one the province had on its books previously.

PUBLIC SECTOR SALARIES

Prentice maintained his assault on the high cost of public services in Alberta, pointing out in his address that Alberta spends roughly $1,300 more per person on services than any other province in Canada. He called salaries “a major cost driver” and although he stopped short of calling for widespread public sector salary cuts as many had expected, he did appeal to government of Alberta workers directly.

“We are asking for your openness to new solutions,” Prentice said roughly halfway through his 24-minute address. “We can use your help in addressing our fiscal challenges.”

BALANCED BUDGETS BY 2017

The $7-billion hole left in Alberta's revenue base as a result of the collapse in crude oil prices will not be closed by next year, Prentice said, confirming his previous remarks that deficits “need to be a part of the solution.” He did, however, promise a return to balanced budgets in as little as two years.

“If we stick to this plan, we will be back to a balanced budget by 2017 even if oil prices do not recover as much as expected,” Prentice said, “and if they do, Alberta will be in an even stronger position.”

RESTORING THE HERITAGE FUND

Perhaps the most dramatic aspect of the plan revolves around saving oil and gas royalties. For years, nearly all of Alberta's non-renewable resource revenue has gone straight towards program spending, but by 2020, only half will go towards program spending and roughly 25 percent will be ploughed directly into the province's Heritage Fund, with the remaining 25 percent going towards paying down debt.

“We must pay off our debts,” read one caption displayed on the screen during Prentice's remarks.

“I truly believe one of the greatest mistakes we have made was to let our commitment to the Heritage Fund lapse,” Prentice said, “I intend to correct that”

To put that element of the plan in perspective, Alberta's proportion of energy revenues that will be earmarked for savings will be roughly the same as in Alaska. The northernmost U.S. state has amassed a $51.2-billion stockpile since instituting that requirement in the 1970s, around the same time Alberta's Heritage fund, which currently has a total of $13.8-billion stashed away, got started.

ELECTION LOOMS

After all debts have been paid, the proportion of Alberta's energy revenue going directly to savings will grow to 50 percent. While that is still just half of the proportion that Norway has been squirrelling away since 1990 (its reserve fund is currently sitting at roughly $709-billion), Prentice is betting that will be enough to convince Albertans to vote for him as a spring election looms.

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