Arctic Yearbook 2014 - Page 213

  213   Issue 2: Clarify Fund Deposit and Withdrawal Rules - Including the Need to Legislate the 25 percent Allocation of Resource Revenues to the Heritage Fund As of June 2014, this deposit commitment from the Minister of Finance, though on the public record, remains an informal agreement (NWT Hansard, February 11 2014). Neither the fund’s purpose, nor many of the rules governing the Fund and its deposit rate have been clarified in legislation or regulation. It will be crucial that the government formalize its commitment to a 25 percent deposit rate through legislation or regulation. The remaining 75 percent of resource revenues are allocated for two other targets for investment proposed by the NWTs Ministry of Finance: debt repayment and investment in infrastructure (GNWT 2013c). Establishing clear deposit and withdrawal rules are critical. For instance, the GNWT’s legislation has set a 20-year minimum deposit amount during which withdrawals from the fund are not permitted. The establishment of minimum deposit amounts, outlining the timing of deposits, combined with strict withdrawal rules will support a fund’s long-term success. Without these elements, the fund’s capacity as a tool to generate wealth for future generations is limited. Once the legislated twenty-year term has ended, the NWT faces a number of options for how much should be withdrawn from the fund, how the money should be spent, and what it should be spent on. Drawing from the history of both missteps and successes of other natural resource wealth funds, the authors look to lessons from Alberta’s post 2013 fund withdrawal rules, where the principal remains in the fund, and only interest on the principal can be withdrawn. (Revenue Watch Institute & Vale Columbia Center 2013). As interest is likely to be volatile, the authors propose that following the twenty-year period, the NWT withdraw a five-year average of interest (less inflation) while leaving the principal entirely in the fund. It is prudent that this interest be spent by government through the budget rather than diverting revenues directly to any initiative outside the budget, as the budget provides a transparent and well audited mechanism. The authors suggest that withdrawals from the fund’s interest be earmarked for a limited number of key underfunded priorities in the NWT. To reach specific development outcomes, it is most effective for the fund to focus on a small number of underfunded priorities. For instance, returns from Chile’s Pension Reserve Fund are only to be used to pay for pension and social welfare liabilities (Revenue Watch Institute & Vale Columbia Center 2013). The most pressing prodevelopment programs or projects that are systemically underfunded in the NWT should be determined through government analysis and citizen input. For example, from its natural resource wealth fund, Texas uses a three-year running average of interest rates to fund education. These funds must be allocated to university capital equipment, scholarships, student services, research, or library books, as overseen by the Board of Regents and University of Texas Investment Management Company (Revenue Watch Institute & Vale Columbia Center 2013). Examples cited in the NWT during this research process included education and municipal infrastructure, however, it will be up to government and citizens to identify underfunded priorities to earmark for the fund’s interest following the twenty year period. The development legacy that could flow from the Heritage Fund’s interest rests heavily on the GNWT’s ability to establish and follow clear rules. Alberta’s Heritage and Savings Fund Daitch, Schwann, Bauer, Dias & Fan Li