The financial impact of the COVID-19 pandemic has not been as hard on Saskatchewan’s finances as the spring budget had initially forecast, when this province was one of the first to release a budget in the wake of the pandemic.
That budget, like all others across the country, essentially forecasted the sky was falling. But halfway through the fiscal year, the sky has not fallen as far as expected.
Deputy Premier and Finance Minister Donna Harpauer said, “I long for the days where I'm just worried about crop insurance claims and potential floods. There is no model that we can compare this to. It’s just a very unknown time. But the officials, I think, have done a great job in gathering the data that we have available to us.”
The 2020-21 mid-year report was released in the Legislature in Regina on Friday. It calls for a deficit more than $380 million lower than budgeted, and an improving economy. It also adds a new $100 million “revenue forecast risk allowance,” essentially an additional contingency fund to deal with the COVID-19 pandemic.
There had been a $200 million COVID-19 contingency fund in the budget, but $40 million was used for the back to school plan in the fall, so there is $160 million remaining. As a result, there are now $260 million in contingency, when the two funds are combined.
“As reflected in these latest forecasts, our government is managing the province’s finances carefully through the pandemic,” Harpauer said. “The mid-year update also includes $260 million of contingencies to cushion against potential pandemic-related revenue and spending shocks over the remainder of the fiscal year.”
If these continencies are not spent, the result will be a further reduction in the deficit.
A deficit of $2.0 billion is now forecasted. That’s also an improvement of $85 million from the first-quarter projection.
Revenue is projected at $14.2 billion, a $503.5 million (3.7 per cent) increase from budget. The increase from budget is due to higher federal transfers ($442.7 million), higher Government Business Enterprise net income ($145.6 million) and higher non-renewable resource revenue ($56.4 million). Tax and other own-source revenue forecasts are unchanged from budget, but the mid-year update includes a $41.2 million decrease in tax revenue as a result of the reduction in the small business tax rate.
Expense is expected to be $16.2 billion, an increase of $122.0 million (0.8 per cent) from budget. This includes increases for the health, education, municipal and tourism sectors, partly offset by lower-than-budgeted pension expense and crop insurance claims expense. The mid-year forecast includes the impact of government’s election commitments totalling $91.7 million, including $87.2 million for SaskPower utility bill rebates. A $160 million expense contingency remains in place at mid-year.
Public debt and net debt are both down compared to the budget forecast. The budgeted debt was $24.369 billion, while the mid-year projection is now $23.828 billion, a decrease of $541 million. Saskatchewan’s net debt-to-GDP ratio at March 31, 2021, is now estimated at 19.6 per cent and is expected to be one of the lowest among Canadian provinces this year, according to the Ministry of Finance, which added Saskatchewan also has the second-highest credit rating in Canada, when ratings from the three major rating agencies are combined.
The pandemic-related recession is also now not expected to be as bad as initially expected in the spring budget.
“Saskatchewan’s economy has performed better than originally anticipated in the June 2020 budget,” Harpauer said. “Real GDP is forecast to decline 5.0 per cent, compared to a decline of 6.3 per cent forecast at budget. Saskatchewan’s unemployment rate was the lowest in Canada in October and total employment, on an unadjusted basis, is nearing pre-pandemic levels. As a result, our planned path to balance in 2024-25 is unchanged.”
Harpauer said, “I'm very pleased to see that the economic indicators are stronger in Saskatchewan than what we anticipated.”
“Our recovery has been relatively strong. I'm very concerned, still, going forward, because we're reliant on two things; largely consumer confidence, and as COVID numbers rise, the consumer confidence is going to fall. The other thing that we're very reliant on, because we're a trade-dependent province, is what is happening in other jurisdictions across the country, but as well as globally. So … I will always have a nervousness for those two factors because they will affect this budget, in a big way.”
Many of the economic indicators in the report, such as average weekly earnings, retail sales, wholesale trade and sales in foods services and drinking places are from August, when Saskatchewan had as few as 29 active COVID-19 cases in the province. But on Nov. 26, Saskatchewan had 299 new cases to report, and 3,146 total active cases. And on that day, the Ministry of Health released its updated plans to “escalate response to COVID case surge.”
To that end, Harpauer said, “We have pre-bought the ventilators. There's a number of costs that we have now spent that were built in the budget, prior, to deal with higher numbers than what we were actually experiencing. So, although there may be a further deterioration of the economy, and an increase in health, we have contingencies on both sides, of lesser revenue, of increased costs. But it won't be in the same manner that it was in the very beginning, when we were buying a lot of health supplies that we didn't have. We have them and we're now prepared for the larger numbers.
Asked if the $260 million is enough to cover additional wages for things like nurses’ overtime, which can exceed $1,000 per nurse, per overtime shift paid at double time, Harpauer said, “We're going be there for a health system, for whatever it takes, and there is no way to say what the magic numbers will be. You are correct in identifying that compensation salaries are going to be a big factor in that. And that is something that we couldn't pre-build or pre-pay. But at $160 million, that will deal with quite a bit of that pressure for the next few months.”
Over the past week the province has reached tentative agreements with both SEIU-West and the Saskatchewan Union of Nurses, two health services unions whose contracts had long expired. Asked how important it was to have labour peace with regards to dealing with the finances and this pandemic, Harpauer said, “It is quite important. Now the majority of the public service had settled,” she said, noting these were among the last remaining agreements. “With each and every agreement that we have, it becomes hard numbers rather than soft numbers that we build into your budget.”
