Things are better than expected, full recovery to take until 2022

BY BRIAN ZINCHUK
Local Journalism Initiative Reporter

REGINA – Saskatchewan’s fiscal state has improved since it released its budget in the earlier days of the COVID-19 pandemic. On Aug. 27, Finance Minister Donna Harpauer released the province’s first quarter fiscal update, and overall things aren’t looking as bad as they did on June 15, when the budget was released. The Saskatchewan Party government expects it will take until 2022 for the provincial economy to return to its pre-COVID-19 levels.

Harpauer said the update and medium-term outlook “shows an improving economy, a smaller deficit and a return to surplus in 2024 25.”

The budget deficit for the 2020 fiscal year is now expected to come in at $2.1 billion. That’s a $296 million improvement from the budget released three months ago.

The Saskatchewan economy is now forecast to contract 5.5 per cent in 2020, an improvement from the 6.3 per cent decline forecast in the 2020-21 budget. In 2021, Saskatchewan’s economy is projected to rebound with real GDP growth of 4.6 per cent.

The budget expected revenue for this year to come in at $13.6 billion. The update now expected revenue to be $14.05 billion, an increase of $398 million, or 2.9 per cent, from budget. Next year revenue is projected at $14.7 billion, $15.5 billion in 2022-2023, $16.3 billion in 2023-24, and finally just under $17 billion in 2024-25, when the province is expected to se a $125 million surplus.

The increase for this year is largely due to $338 million of federal funding under the federal-provincial Safe Restart Agreement. A modest $56 million increase in resource revenue is also forecast at first quarter.

Expenses are forecast to be $16.18 billion, an increase of $103 million, or 0.6 per cent, from budget. The forecast includes a $72 million increase for the health system, a $70 million increase for municipalities and a $35 million increase for new supports for the tourism industry.

These forecasts are built on a few assumptions, according to Deputy Minister of Finance Rupen Pandya. The principal assumption is that public health measures in Saskatchewan and around the world are successful in dealing with the pandemic. Pandya said, “We don’t anticipate a return to large scale closures of the economy. In fact, outbreaks will be managed on a local basis. And going forward, COVID-19 can be mitigated. And we’re forecasting of return to pre-COVID in 2022 in terms of the full functioning economy.”

The update includes forecasts for the price of West Texas Intermediate oil to average US$38 per barrel this year, US$44 per barrel next year, then $49 per barrel in 2022, US$57 per barrel in 2023 and US$59 per barrel in 2024. Those assumptions are based on private sector and local-level production sales data, according to Pandya.

Potash, however, is expected to remain essentially flat over the same time horizon, at US$179.43 per KCL tonne this year, and slowly creeping up to US$195.21 in 2024.

Wheat and Canola prices are also expected to remain within a few percentage points of current prices. Wheat is pegged at $226 per tonne this year, rising slowly to $235.99 per tonne in 2024. Canola is $454.30 per tonne for this year, and is expected to fluctuate between $472.57 per tonne in 2021, down a few dollars over the next two years, and returning to $472.92 per tonne in 2024.

The update noted that improving oil prices helped the state of the province’s finances, as they aren’t as poor as they were initially expected. The budget forecast WTI at US$30 per barrel.

But Harpauer isn’t relying on resource revenue to make up for the expected growth in revenue.

“We’re projecting for non-renewable resource revenues that are only 10 per cent of our budget, and will remain so,” she replied, when asked where the additional revenue will come from over the next several years. “We made a significant structural change to our budget, which is why I feel very confident, and it is own source revenue and taxation. So a large part of it, in the beginning, we’ll be recovering that tax base once again as our economy recovers, and we get back to the tax base that we had. And then it’ll be growth going forward from there. And again, we’re projecting the normal pattern of growth that we’ve had historically, over the last several years.”

Harpauer noted that tax competitiveness will be important in the future. She’s not ruled anything in or out of future budgets, but the projections are there will be no new tax increases under the conditions today.

Asked if shutting down the economy to the extent it that took place, but now much of the economy has been restored and kids are going to school, was it worth it in hindsight, Harpauer responded, “You know hindsight is always 20/20 vision and what we were facing of the province .and what they knew the people of Saskatchewan were facing initially was the uncertainty and we erred on the side of caution, as did other the provinces and many other countries.

“So, a lot of people I can look back and say it wasn’t necessary, but at the time we didn’t know what this particular virus was capable of. And we were very, very upfront, that we build capacity, should we have a catastrophic spread of the virus throughout the province, building the capacity within our healthcare system. So I’m sure there’s going be a lot of reflecting back, in not just this province, but, in our country and other countries, of what should have, could of be done differently. But we made what we felt was the best decisions at that time, which was to err on the side of caution and we were not alone in that.”