Responsible long-term planning for oil revenue in NL & Lab
This petition calls on the Government of Newfoundland and Labrador to commit to responsible long-term budgetary planning of oil revenues. The province need look no further than the country of Norway who has been cited as a model of progressive and effective management of it’s oil resources.
The history of the oil and gas industry in Norway is a saga of bold political decisions. The government and its people have used their oil revenues to invest for future generations. It is a lesson the Government of Newfoundland and Labrador should study closely and learn from.
The Government of Newfoundland and Labrador is currently dealing with its third consecutive deficit in the province even though oil revenues have climbed steadily. Meanwhile, net debt has increased to $9.1 billion in 2013-14 and is projected to increase to $10.4 billion as of March 31, 2015.
The Government of Newfoundland and Labrador states in its Economic Outlook that the
“enormous potential of the province's offshore resources is reason for optimism about the economic future of Newfoundland and Labrador. The Canada-Newfoundland and Labrador Offshore Petroleum Board has announced a 249 million barrel reserve increase for Hibernia bringing total reserves to 1.644 billion barrels (from 1.395). This optimism is also supported by recent land sale results in the Newfoundland and Labrador offshore. Successful bids were received for three of six parcels and the bid on a parcel in the Flemish Pass by ExxonMobil Canada Ltd., Suncor Energy Inc. and ConocoPhillips Canada Resources Corp. was $559 million, the highest bid ever on a land parcel in the Newfoundland and Labrador offshore area.”
While this is great news for potential revenues, management of this resource by the provincial government has to be handled in a more responsible and prudent manner. Overspending and lax management will see these resources squandered and the province and its people still facing deficits.
Norway is a leading example of how to successfully manage oil assets. It has avoided many of the mistakes of other oil-rich nations. When Norway discovered oil under the North Sea they nationalized their oil resources. Norway claimed ownership over its oil. They welcomed big international oil companies but on their terms. They also taxed those oil companies heavily, still leaving them with a healthy profit.
In 1972, the Norwegian government also established its own oil company, Statoil, which was awarded 50% of all petroleum production licenses. They also put up 50% of the equity for the costs of exploration, but would also keep its equity share of the profits. Oil companies agreed to Norway’s terms in order to do business in their country.
And significantly, unlike the government of Newfoundland and Labrador, Norway doesn't spend their oil revenues, but invests them. The country provides a truly unique example of long-term budgetary planning. In order to help pay for the costs of ageing, it transfers petroleum revenues to the Government Pension Fund. They spend only 4% of oil revenues and the rest is placed into the Government Pension Fund for future generations when oil revenues decline. Established in 1990, by January 2015, it will be worth over one trillion dollars.
Why is Newfoundland and Labrador in debt and running a deficit for three consecutive years after tremendous economic growth? What will the province do when it no longer has its revenue from a non-renewable resource?
The Canadian Federation of Business reports that the province is spending at unsustainable levels and concludes the government must reduce spending by $1.6 billion to achieve financial sustainability.
“Between 2003 and 2014 the provincial government increased spending by 29.7 per cent, whilst the population only grew by 1.6 percent. Had the government controlled spending at the benchmark of inflation and population growth, they could have saved over $11 billion in that period.
The province has been spending almost every dollar in revenue and has borrowed and run deficits to maintain its current spending levels. The government has become heavily reliant upon offshore oil revenues and, given their volatility and unpredictability, this path is fiscallyunsustainable.”
This petition is a call for the Government of Newfoundland and Labrador to commit to better management of oil resources and to establishing a Savings Trust Fund, that follows the Norway example of keeping the income in the fund for a time when the oil industry no longer generates revenue. The reason for the creation of the fund was to counter the effects of the possible forthcoming decline in income, and to smooth out the disruptive effects of highly fluctuating oil prizes. Something the province of Newfoundland and Labrador is experiencing today.
While setting aside revenue is not a popular idea at a time of deficits and debt, it is necessary. A commitment is needed to set a time frame for putting an increasing share of resource revenues into a fund. It requires bold political action. The Canadian Pension Plan Investment Board, which has never been raided, can serve as a model.