Ecology North’s Presentation on Bill 10
Thank you for the opportunity to speak to this bill. Ecology North supports the ideas behind the NWT Heritage Fund Act and we’re glad to see the bill moving ahead.
Creating a heritage fund is a key step towards promoting truly sustainable development.
Non-renewable resource development is by definition, not sustainable. If we want to have truly sustainable resource development, a) it cannot undermine ecological integrity and b) it must help us to achieve long-term sustainability after the resources are gone.
In general, I think the problem with the Act is that it is too vague. It basically sets up a bank account and sets some limits on future withdrawals. It does not really say anything about the type of revenues that should go into the fund or how those funds should be used. Leaving this to the politicians of the day, I believe, would be a mistake. Just as there is an independent board to manage funds for the Worker’s Safety and
Compensation Commission and there is an investment board under the Canada Pension
Plan, we need an independent, arms length body to manage the Heritage Fund.
One of the problems with the vagueness of the Bill, is that it is not as clear as it should be about the type fund that we are talking about. As pointed out in the GNWT’s discussion paper, there are two different funds: a heritage fund and a revenue stabilization fund. Both are valid but they are very different ideas. The revenue stabilization fund is akin to setting aside several months salary for short term emergencies while a true heritage fund is like savings for retirement.
At this juncture, it is worth reviewing some of the mistakes Alberta has made managing its resource revenues. Right now, the wealthiest province in Canada has about a $5 billion operating deficit. The crux of Alberta’s problem is that 25% of the revenue for its operating budget comes from resource revenues. When resource revenues are high it tends to have budget surpluses and when they are low, like today, they have deficits. Alberta has stopped making contributions to its Heritage Fund some time ago and has only been making contributions to its revenue stabilization fund. Of late, it is has been drawing down rapidly its revenue stabilization fund to cover large deficits. Unless things change, the revenue stabilization fund could be practically empty by 2014. The revenue stabilization fund makes Alberta’s reliance on resource revenues for operational expenditures a bit more tolerable but only masks the problem. Through its low-tax policy and low royalty regime on the tar sands,
Alberta is essentially spending its retirement savings and its kids’ inheritance today.
One of the harsh lessons Alberta is learning is that it is very difficult to undo its mistakes. People are now used to what is called “the Alberta advantage” and loath the thought of giving it up. By supporting these policies, people are supporting a super heated economy based on the rapid exploitation of natural resources and its attendant environmental consequences. We have to learn from and to avoid Alberta’s mistakes.
A stronger NWT Heritage Fund Act, which sets out as clearly as possible what we want and how we will get there will help the NWT to avoid Alberta’s financial and environmental challenges.
Sections 1 and 2
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One of the first challenges with Bill 10 is that much of the language and policy rationale from the discussion paper is lost in the bill. The bill does not talk about the sharing of natural resource revenues between generations. The bill only talks about in 2 (2) “The
Heritage Fund is for the benefit and use of the people of the Northwest Territories”. This strikes me as a bit vague. Even the title of the Bill does not give you an idea of what it is for.
A fundamental principle that should be made very clear in the Act is that a fixed proportion of resource revenues should go into the fund. I will touch on this more in a few minutes.
Sections 4 and 5
FMB or Cabinet should not be in charge of the Fund. An independent body should manage it. There are all sort of examples out there of independent bodies with a proven ability to manage funds in the long-term and free of politics-of-the-day. The
Worker Safety and Compensation Commission managing the Worker Protection Fund
(WPF) and the Canadian Pension Plan Investment Board managing the investments of the CPP are but two examples. I think the reasons to establish independent bodies for the WPF and CPP funds exist equally for the NWT Heritage Fund. Such an independent body should include a cross section of people and external investment experts. This independent body should be accountable to the Minister of Finance, the
Legislative Assembly, and, most importantly, the people of NWT. The Act should lay out these accountability arrangements.
Section 6
It strikes me that the mechanism for annual contributions of the fund is too discretionary. The provisions of 6(1) would not prevent a minimal contribution. I know myself and most people have a hard time accumulating savings unless the contributions are automatic and outside of their day-to-day control. If there is too much day-to-day control, few of us can accumulate much savings. There has to be some type of a fixed percentage to clearly define the amount of resource revenues transferred into the fund; good years or bad. I note that Alaska has a fixed formula entrenched in its state constitution, which only the citizens of Alaska can change by referendum.
Section 7 and 8
Clearly the provisions of the bill in section 7 and 8 are intended to support a longerterm vision of the fund. As a five percent growth in returns is not historically a bad rate of return. Therefore, nothing after 10 years would prevent the Legislative
Assembly from stalling out the growth of the Heritage Fund. A ten year time-frame appears to us appears too short, especially in light of the fact there would likely be other resource revenues available to the Government. Therefore, 20 years or even longer seems like a much more reasonable period of time.
In conclusion, it is not enough to set up a bank account with the vague hope that we will have enough discipline to put aside enough money every year. I know from
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personal experience that this doesn’t work. We also know from the Alberta experience it did not work. We need to depoliticize the process and to make those contributions as high as possible and outside of the day-to-day control of politicians. In order to do this the goals and principles of the Heritage Fund need full inclusion in the Act. We also need to set up an independent body responsible for administering the fund and to give it as much power as possible in terms of determining contributions and disbursements. We need to make that body as independent as possible with a strong mandate and sufficient resources to do their job effectively. Having the Heritage
Fund outside the political domain does not preclude Cabinet and MLAs having a role.
If they want to change the key details of the Fund they will have to do it through the legislative amendment process such as this one.
Thank you for your time and I would be pleased to answer any questions that you may have.
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