Regina– The big drop in oil prices and a heavy forest fire season have combined to hurt the Saskatchewan government’s fiscal picture, turning a forecast surplus in this past spring’s budget to a forecasted deficit.
On Aug. 31 Finance Minister Kevin Doherty released the 2015-16 First Quarter Financial Report, which shows that forest fires and the decline in oil prices have put the province’s finances into a deficit position after the first quarter of the fiscal year.
“We’ve gone from a projected surplus, from a $170 million surplus in the summary financial statements brought down by Minster Krawetz in his budget in March, to the end of the first quarter, in June, we projected a deficit of $292 million at the end of the fiscal year, ” he said.
There are still nine months left to go in the fiscal year, so the government is putting measures in place on the executive side and Crown corporation side to find that $292 million to bring that number back into balance by the end of the year, Doherty told Pipeline News on Aug. 31.
Asked how much more restraining the province could do after several years of restraint already Doherty said, “There’s restraint you can find in any budget. To put it in context, if you look at our just over $14 billion budget, a $292 million deficit is just over two per cent of our annual budget.”
So they will be asking ministries to seek cost savings within their budgets. It could be delayed information technology projects, conference attendance cancelled. Health, the largest line item on the budget, has not been excused from this exercise.
The spring budget assumed oil at US$57.15 per barrel for the year. That number has been revised to $49.50 for the rest of the fiscal year, according to Doherty. Oil would have to be around $45 per barrel for the rest of the fiscal year to achieve that. The Canadian dollar has been reduced to about 77 cents US on an annual basis.
“Oil comprises about five to six per cent of our revenue base in this current fiscal year. As we’ve seen over the last week, oil goes up and goes down.”
“It’s difficult to see where oil is going. I see the province of Alberta today actually increased their forecast of the price of oil by a dollar from their March budget. They’re taking a bit of a different view, and I think we’ve built in some cushion there.”
“Lower oil prices combined with an unprecedented number of forest fires and the largest evacuation in Saskatchewan’s history are putting pressure on the province’s finances,” Doherty said in a release. “At the same time, our diversified economy continues to show strength in other areas. Our population continues to grow, our unemployment rate is the lowest among provinces, and we continue to show the strongest growth in wholesale trade in Canada.
Total revenue for 2015-16 is now forecast at $14.04 billion, down $237.8 million from budget. Total expense is now forecast at $14.33 billion, up $161.0 million from budget, putting the current projected deficit for the fiscal year at $292.0 million.
While Alberta is now facing a $6 billion deficit and is raising taxes, Saskatchewan is not raising taxes, according to Doherty.
NDP response
NDP Finance Critic Trent Wotherspoon told Pipeline News, “It’s become abundantly clear to most Saskatchewan people the Sask. Party has trouble managing our finances. The reality is their story is one of debt and deficits and piling on waste for Saskatchewan people to pay for.
“I know it’s alarming to many the Sask Party actually hiked up provincial debt by $5 billion the last four years. That’s a 60 per cent increase, and that’s during some of the best budgetary years of this province. That’s reckless and unsustainable, and certainly comes at a cost. Piling on debt like that is simply deferring costs that will be piled onto Saskatchewan people for many years moving forward.
“They haven’t been able to balance the books during the best times in Saskatchewan, built now fiscal cushion, drained the rainy day fund and haven’t saved a penny.
“I know, going into this budget year, we cautioned government on budget day they were overly optimistic on resource revenues, and unfortunately, that’s the reality here as well.”
He suggested some waste could be cut. Expenditures have had misplaced priorities, he said, with no shortage of money for the “LEAN contracting debacle.”
Private consultants, P3 school construction and ballooning Regina bypass costs are areas to be cut, according to Wotherspoon.
He pressed the minsters of Finance and Economy at budget time on the economic impacts of the declining price of oil.
Oil used to bring in bring in $1.7 billion and now that number is closer to $700 million this year. To make up for that billion dollar short fall, Wotherspoon said there’s over a billion dollars of waste, including a “flawed procurement policy.”
“The reality is, in a resource revenue environment that Saskatchewan is, you shouldn’t be spending every single dollar that comes in, and more, and not during the best years. For this government to preside over a rather unprecedented opportunity by way of record resource revenues flowing in, it was a major mistake for them to spend every dollar and more. They spent the rainy day fund. They haven’t saved a dime by way of a long term savings fund, they’ve piled on debt by way of the Crowns. That’s not the kind of management Saskatchewan people deserve.”
In the last provincial election, then-NDP Leader Dwain Lingenfelter campaigned on the idea of a sovereign wealth fund. Asked if this is what he was leaning towards, Wotherspoon said, “We’ve been adamant, and have pressed government about the importances of a long-term savings fund, a sovereign wealth fund, if you will; a futures fund. This government pretended at one point in time to say they would do this. They’ve punted any considerations on that front all the while piling on the debt.”
A long-term savings fund is something the NDP is committed to, he said. “It’s something that frustrates and angers a lot of Saskatchewan people when they look at the reality this government as presided over record resource dollars flowing into it, and has spent every one of those dollars and more.”
We had a sovereign wealth fund, once
Saskatchewan used to have its own sovereign wealth fund. Here’s The Encyclopedia of Saskatchewan passage detailing it.
“The Saskatchewan Heritage Fund was an investment fund set up and administered by the provincial government between 1978 and 1992. It received and invested the province’s natural resource (primarily oil, potash, and uranium) revenues and attempted to save resource revenues for future generations. The Fund was established under the Heritage Fund (Saskatchewan) Act of the provincial Legislative Assembly on May 2, 1978, and was formed by the merger of the former Special Investments Account and the Energy and Resource Development Fund (which had been set up earlier to manage the increasing flow of revenues resulting from higher oil prices). The initial capital was about $465 million, but this grew over the years so that the balance of the Fund was frequently over $1 billion. The Fund received all non-renewable resource revenues, invested these, and paid a dividend of not more than 80 per cent of the Fund’s balance each year to the provincial Consolidated Fund (later the General Revenue Fund), from which all provincial expenditures take place. The Fund provided investment capital, usually in the form of loans, to provincial Crown corporations such as the Potash Corporation of Saskatchewan. Capital projects such as hospitals, restoration of historic buildings, airports, and universities were also financed, and the Fund provided monetary incentives to the petroleum industry. The Fund was most active during the Blakeney government; during the Devine government it was less significant, and was finally wound down by a repeal of the Act in 1992, when it was seen as no longer necessary. During its existence, the Fund was an important mechanism for enabling the provincial government to assume greater control over resource management.”
