Saskatoon - The impact of the oil sector on the provincial economy and government revenues factored large in a speech made by Premier Brad Wall to delegates of the Saskatchewan Urban Municipalities Association convention in Saskatoon on Feb. 6. This was especially important as he explained how the province is now looking at a $1.2 billion deficit this year, and that, as a result, the municipalities would be getting less money.
In the opening of his speech, Wall said, “For nearly three years now, and sometimes I think we’ve lost track of just how long it’s been, for three years, we’ve been battered and bruised and buffeted by a stubbornly long down cycle in commodity prices. It’s been a perfect storm for Saskatchewan. It’s affected oil, significantly affected oil and the energy sector. But also potash, and also uranium, and that storm is still blowing a little bit. We aren’t out of it by any means.”
He added the economy is resilient and more diversified than it has ever been. Unemployment rates are lower than the national average, and the province’s population has continued to grow.
He spoke about a neighbour of his in Swift Current who has been waiting to go back to work for 18 months. Businesses have failed.
Wall said, “There are hopeful signs. There are optimistic signs … Specifically in oil, with oil at now above $50 a barrel West Texas, we’ve seen companies like Husky announce a billion-dollar capex program for our province, almost exclusively here in Saskatchewan, as opposed to the province where their head office is. Crescent Point has announced an increased capital investment plan for Saskatchewan. About 80 per cent of that will be in this province, versus the province where their home office is.
“Raging River is another example of that, another company that has announced increased capital expenditures. We’re hearing, anecdotally, in Weyburn, I think there was a story in the news about a company that’s actually struggling to find the workers it needs as things start to pick up.
“The number of wells drilled this year is forecast to jump by 20 per cent in Saskatchewan. Companies are hiring again,” Wall said.
He noted the Fraser Institute has now ranked Saskatchewan number 4 in the world for sub-national jurisdictions to invest in for oil.
“We see hopeful news in pipeline approvals. I want to acknowledge and thank Prime Minister Trudeau and his government for the recent approvals they have made. They are important because they will help us decrease the differential, the discount at which we’ve been selling our oil for a long time,” he said, referring to the higher rate that can be obtained for Brent oil at tidewater.
He touched on environmental impacts of pipelines, but added they represent hundreds of jobs in Saskatchewan and new revenue for municipalities. EVRAZ in Regina also depends on this sort of work for pipeline customers.
Agriculture, and related food industries, have been strong, he noted.
No bounce back
But the provincial budget is a cause for concern.
“Government revenues have dropped precipitously in the last number of years. There is no immediate bounce back coming to the higher levels we would hope, on the resource side of the equation. Oil has recovered to some degree. Analysts, though, believe ceiling for that, at least now and for the mid-term, is about $60. That’s the ceiling. Because as the price increases, so will production. Shale oil in the U.S., has been a game-changer, for us.
He wanted to set expectations straight, saying, “I don’t think we should be on, or plan on, or won’t plan on $100 a barrel, $80 a barrel, or $70 a barrel any time soon. That’s the reality. But at least prices of oil are off their historic lows. We can’t say the same for potash. We can’s say the same for uranium. Those prices are still at historic lows, with little expectation that will change.
“I remember when the down cycle started. Three years later, we’re all better at hindsight, especially those in politics on both sides of the aisle. There wasn’t an analyst I was reading that forecasted lower for longer, at least as long as it has been, and it likely to continue.
“It means our resource revenue for the province is down and down significantly. This fiscal year, non-renewable resource revenues are down about $1.2 billion from 2014 levels. That’s eight per cent.
“What would you do as a local government, if, year-over-year, your revenue was down eight per cent, and it didn’t look like there was a chance for recovery, in the immediate future?” Wall asked.
The resource slowdown has impacted general revenue on income tax and PST. An additional expense, crop insurance claims are up over a quarter billion dollars.
Thus, Wall said he had the unhappy duty of telling them the deficit will be about $1.2 billion.
His plan had been to balance the budget in 2017-18. “This is the goal we are still working towards,” he said.
The government is wary of shocking the economy, or gutting the public service, Wall noted, adding, “But you need to know, that as we deal with the fiscal imbalance, everything is on the table.”
He touched on austerity measures already enacted including reduced travel, less training, hiring freezes and more, but that still hasn’t closed the gap.
Across government, $7 billion is spent on human resources salaries. “Friends, we will have no success on bringing order to our finances unless we can contain our payroll costs,” Wall said, implying that should carry over to municipalities, school boards, health care and universities.
“Our minimum expectation is we will freeze the HR costs in government for this year, and potentially for a few years down the road.”
A rollback of public sector wages has been looked at. One budget scenario would see small tax increases, but cuts resulting in 4,900 job losses in health care, as well as layoffs in education. “It’s on the table still, it has to be, until that final deliberation happens later this month,” he said.
He noted it is not “cruel austerity,” depicted by some. “Those of us taking part in this decision should be careful about debasing the language, because real austerity, has been what’s happening to my neighbour a few doors down, on Conlon Drive.
“He’s been out of work for 18 months. That’s real austerity.”
Similarly, Wall said real austerity happened when jobs were lost at the Rabbit Lake uranium mine, and the rollback there was 100 per cent. “That’s real austerity,” he said.
As a result, municipalities will be getting less money.
As for rhetorical question of “where the money went?” Wall spoke about spending $8 billion on infrastructure, increased revenue sharing, reduced taxes across the board and paying down operating debt.
PST exemptions and education property tax are two items that will be addressed, he noted. But infrastructure investment will remain a key component of spending as will innovation in things like carbon capture and storage.
Wall warned about the impacts of a carbon tax on the Saskatchewan economy.
Most other jurisdictions in Canada are not having this discussion on deficits, he pointed, out referring to it as “collective amnesia, what happened decades ago, where we can indeterminately deficit finance, and some government down the road will have to deal with the very traumatic impact for ignoring it for too long.”
“It’s like history repeating itself. Well, this is Saskatchewan, and we learned from our history. And I don’t think we kick the can down the road on major problems. When it comes to the finances of the provinces, we cannot afford to do that.”
