There was one thing we didn’t see in this most recent provincial budget, but it was certainly there – a giant reset button.
For many years now, the provincial government could count on non-renewable resources to bring in about one-fifth of the revenues needed to pay for things like hospitals, schools, highways and jails. Most of that money was from oil, but occasionally potash would be the top number. While we like to think uranium is important, it’s really not, revenue-wise. It doesn’t even get its own line item anymore in most budget documents.
However, over the past three years oil, potash and uranium are all down. Non-renewable resource revenue dropped to about one-tenth of the province’s income, and that’s a big problem. After two years of trying to ride it out, the Saskatchewan Party government, unlike the NDP in Alberta or the Liberals in Ottawa, decided to act decisively. (We should add the federal deficit is nearly entirely of the Liberals own doing.)
Fundamentally it means instead of relying on the pumpjacks to pay a good chunk of the bills, we will be, mostly through new taxes, but also through reduced government expenditures. The expansion of the PST alone, plus ratchetting it up one per cent to six per cent, is expected to bring in an additional $865 million per year. It doesn’t make up for the loss of oil revenue, but it helps.
This re-jigging of where our revenues come from dramatically reduces our reliance on non-renewable resources like oil and potash. Once complete, it should wean us off much of our our dependency on oil, especially.
So what happens when things in the commodities world eventually turns around? These days, few, if any are forecasting oil to hit $100 again in the next several years. But what if it does? What if potash spikes ands starts bringing in billions again? What do we do with the money?
The wrong answer is to say, “Well, time to restore all those spending cuts from 2017!”
If we do that, based on resource revenue instead of taxation, we’ll just have to make the same cuts again in the next down cycle.
Instead, we should fire up a sovereign wealth fund.
Now, I’m well aware Premier Brad Wall strongly believes one should pay off the mortgage before putting money in the bank. Perhaps. If we suddenly got $100 oil again for a few years, we might be able to do just that – and retire a big chunk of debt – if we put any additional money over today’s level straight on debt.
But maybe another consideration might be to put half of all additional non-renewable resource revenue on debt, and the other half into a sovereign wealth fund? It might not be an elegant solution, but it would be a start. Heck, North Dakota used to produce 90,000 bpd back around 2008, then spiked to over a million bpd before the downturn hit. It’s got something like $3 billion in a sovereign wealth fund, and we’ve got squat, and until a few years ago, we were producing a lot more oil than they were for decades.
Those civil servants who took pay cuts won’t like this idea. Nor will they like the idea of low, if any, raises for the foreseeable future. But a good sovereign wealth fund could make all the difference in the world the next time we see a downturn like this.
If we’re going to do it, 2018 is the year to start.
