This fund is a $100 million shell game

Christy Clark’s Liberal government failed their magic trick by revealing the source of the new Prosperity Fund.

The art of being a good magician is to leave the audience wondering how on earth you produced that rabbit from an empty hat.

Christy Clark’s Liberal government failed that test in its recent budget when it announced it was establishing the much trumpeted Prosperity Fund next year with an opening deposit of $100 million.

Now that was a spectacular rabbit considering the money for the fund was supposed to come from taxes levied on operating LNG plants and there are none of those in BC nor will there be any in 2017.

But they ruined the trick by explaining where the money, in the absence of taxable LNG plants, would come from – “the government’s strengthening economy, fiscal discipline and reduction in operating debt.”

But full marks for being transparent on the source of the $100 million.

However, my immediate cynical reaction, given the fund is being kick started in 2017, an election year, was this was simply a slush fund the government would use to make feel good spending promises in the lead up to polling day.

Not so, says a government backgounder on the fund.

“Government has identified its lead priority for the BC Prosperity Fund as reducing taxpayer-supported debt. Government will allocate a minimum of 50 per cent of each year’s allocation to the fund to debt retirement, and a minimum of 25 per cent will be saved to accumulate earnings. The remainder will be available for core government priorities that provide long-term benefits to British Columbia.”

So, if we are to take the government at its word, the most it would have available to fuel its pre-election giveaways will be no more than $25 million – which doesn’t go far these days.

But looking ahead, the backgrounder offers the promise of better things to come: “Future government surpluses including LNG revenues will help grow the fund over time.” I find those last two words very interesting. Essentially they mean “one day”, a sea change from when the government bravely laid out precise target dates and revenue forecasts. But then none of those predictions have ever come true.

It proved to be absolutely the right time to embrace reality given just a few days later AltaGas CEO David Cornhill announced it was shelving the Douglas Channel LNG project.

In the last couple of years Kitimat LNG, LNG Canada (also in Kitimat) and Pacific NorthWest LNG (Prince Rupert) have all delayed a final investment decision but also gave a new target date.

Not so with AltaGas. Noting Douglas Channel has been unable to get “meaningful” sales agreements for its product, Cornhill flat out said his company would not be spending any more money on the project. He offered  no predictions as to when that may change beyond saying he expected the LNG market will balance “sometime”.

He is correct of course, the market will eventually come about. But with oil prices stubbornly sticking in the mid $30 per barrel and no reason to think they will recover any time soon to the $50 level – a figure many see as the take off point – it looks like we are going to have a long wait. And so will any significant boost to the provincial government’s Prosperity Fund.

FOOT NOTE: One thing that puzzles me about the Liberal government’s details on the fund mentioned above is an apparent contradiction.

On the one hand it says the $100 million comes in part from “reduction in operating debt”. Then says $50 million of the newly created fund will be dedicated to “debt retirement”.

Now I know those are not quite the same animal but I cannot figure out why the government didn’t simply apply the money from the reduction in operating debt directly to debt retirement.

Oh, wait a minute. That would have made the amount deposited into the new Prosperity Fund look even sillier than it does.

Retired Northern Sentinel newspaper editor Malcolm Baxter now lives in Terrace, B.C.

 

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