As we begin 2022, it is time for us to begin looking forward and planning for our future as individuals and as a province. The next generation deserves a healthy province and country financially and we need to begin to address this now.
The recent comments in a fiscal update from Finance Minister Travis Toews bring optimism and hope that we are seeing revenues increase and we can hopefully address some of the debts we have built up over the last eight challenging years.
If we continue to do things the way we always have, we are going to destroy our last opportunity to create a legacy that would honour former premier Peter Lougheed’s early vision when he established the Heritage Savings Trust Fund.
A seminal work in personal finance is the book The Wealthy Barber, written by David Chilton. His great insight is if you wait to put money into savings out of money left over at the end of a paycheque, you will never save anything. The way to build wealth is to pay yourself first. "It's crucial to understand that wealth flows from savings, not from income,” says Chilton. “It's important to put away at least 10 to 15 per cent of your income.”
If it is a good enough principle to build personal wealth, it is a good enough principle to build a fund we could call Alberta’s Sovereign Wealth Fund.
The failure to maintain a provincial savings policy in the past was because the savings target was contingent on saving a portion of Alberta’s volatile resource revenues. When revenues go down, the savings discipline is abandoned.
The new approach should be to save 10 per cent of all government revenues to build an "Alberta Sovereign Wealth Fund" to one that will be a true legacy for Alberta.
If the government were to do that based on this year’s revenues (total revenue in 2021-22 is forecast at $57.9 billion), it would save $5.7 billion. It may be too jarring to start a savings program at such a high level, so I would recommend the government start with $1 billion and grow it by $1 billion a year until 10 per cent of all government revenues go into savings annually.
Until we reach $500 billion in savings, we should also allow all the investment income to compound in the fund. The numbers speak for themselves about how powerful this pay yourself first strategy is. The hardest part of saving is getting started and sticking with it. This upcoming budget is the year to get started.
Let’s rename the heritage fund the Alberta Sovereign Wealth Fund, save 10 per cent of all government revenues, and maintain investment income in the fund with the goal of growing it to $500 billion by 2050.
The government needs to maximize its revenues, re-engineer program delivery on free enterprise principles, and start saving for the future.
Alberta can be the envy of the world in creating a legacy for its citizens by investing responsibly, being a world leader on the environment, while realizing the lifelong dream to truly diversify our economy and build a wealth fund.
Think of how great this could be. Now is the time.
John Liston is the vice-president of Alberta Enterprise Group and a St. Albert resident active in our business and charitable communities.