Norway’s Ambassador to the United States, Samuel D. Heins, was recently in Anchorage. Inevitably, the comparisons between Alaska and Norway came up.


Major oil strikes were made in both regions in the late 1960’s and production began in the 1970’s.


Both Norway and Alaska decided to create long term investment funds to ensure their newfound oil wealth would be available for future generations.


And that’s pretty much where the similarities stop.


The Alaska Permanent Fund is valued today at about $53 billion. Norway’s fund is currently worth about $873 billion.


There’s no way to make an apples to apples comparison with Norway. For one thing, the government is a 67 percent shareholder of Statoil and so the debate over taxes is pretty much an internal discussion.


Norway also has a greatly diversified economy.


Oil and gas revenues contribute just 20 percent of the country’s budget.


In contrast, oil revenues accounted for more than 90 percent of Alaska’s General Budget. It wasn’t part of our economy. It was our economy.


And the Norway and Alaska experience also differed in two profound ways.


When oil dollars started to flow in Alaska we eliminated the state income tax. Norway did not.


Norwegians pay a personal income tax rate of about 40 percent. And while Norway created a savings account, Alaska created more of a checking account.


Roughly half the earnings of our permanent fund have been paid out in dividends


But I wondered, what if we had chosen the Norway model? What would our permanent fund be worth today, if we had made it a true savings account?


I put the challenge to Scott Goldsmith, professor emeritus of economics at the University of Alaska and he did the math.


graphic


According to Goldsmith, had we invested the portion of the fund we spent in dividends the state would have an additional $69 billion in the permanent fund. The fund’s value would be approximately $121 billion.


You could cover today’s budget deficit on the interest and still have a billion dollars to spare.


This isn’t to say that Norway’s rainy day plan is better than Alaska’s.


The dividend made a real difference to many Alaska families and our local economy.


It’s just an observation, along with one more: It’s not raining in Norway.


John’s opinions are his own, and not necessarily those of Denali Media or its employees.


 


The post Reality Check w/ John Tracy: How Alaska and Norway handled their oil revenue appeared first on KTVA 11.