Separation Report's Faulty Assumption: Financial Discipline in Alberta

The Alberta government's separation report was released recently, running hundreds of pages on tax bases, trade flows, credit ratings, and transition costs. However, a crucial assumption underlies these numbers: that a separate Alberta would maintain disciplined institutions.

This assumption is problematic, as it relies on the province's past performance. In 1976, Alberta set up the Heritage Savings Trust Fund with the goal of saving oil windfalls rather than spending them. Unfortunately, the discipline was short-lived, and governments began drawing down the fund for current expenses. Norway, in contrast, has successfully implemented a similar savings plan, resulting in a fund worth over $1 trillion.

The report suggests that a separate Alberta could join Norway in achieving a high credit rating by building up its Heritage Fund. However, this overlooks the fact that Alberta previously had the opportunity to establish such discipline and failed to do so. The separation report's projections are built on the assumption of sustained financial discipline, which may not be justified.

Pablo Policzer, an associate professor of political science at the University of Calgary, argues that an independent Alberta would lack external checks, making it prone to weaker accountability and democratic backsliding. He notes that oil-dependent states often struggle with governance issues, citing examples such as Venezuela and Nigeria.