Saskatchewan’s surprise deficit should serve as warning for Alberta
In Monday’s mid-year fiscal update, the Moe government in Saskatchewan revised its $1.0 billion projected budget surplus to a $250.5 million projected deficit in 2023/24. This change in fiscal fortunes, driven primarily by lower potash prices and higher crop insurance claims, should serve as a warning to Alberta.
Of the $1.3 billion change in Saskatchewan’s budgetary balance, nearly half ($717.8 billion) can be attributed to lower resource revenues, which include potash. Driven primarily by commodity prices, potash revenue, like other sources of resource revenue (including oil and gas royalties), is inherently volatile. According to the Saskatchewan government, a US$1 per tonne change in the average price results in a $6.6 million change in potash value (all else being equal). Relative to the Moe government’s budget projections, potash prices unexpectedly declined by 28.6 per cent—that’s a big hit to the budget.
As a result of the unexpected deficit, Saskatchewan’s net debt (total debt minus financial assets) will grow to a projected $15.0 billion in 2023/24. Saskatchewanians are ultimately responsible for financing this debt through their taxes, which means that more than $822 million in taxpayer money will go towards government debt interest payments this fiscal year, rather than towards health care, education or even tax relief.
Again, Albertans, including policymakers in the Smith government, should heed this sharp reversal in fiscal fortunes. While Alberta is on track to record a budget surplus in 2023/24, it’s predicated on relatively high resource revenue, which as Saskatchewan’s experience has shown, could change at any moment.
According to the Smith government’s own estimate, a $1 drop in oil prices is equal to a $630 million decline in government revenue. With a projected budget surplus of just $2.4 billion in 2023/24, there’s not much wiggle room to avoid a budget deficit should oil prices decline. And oil price forecasts have already been reduced this fiscal year from US$79 per barrel (WTI) to US$75 per barrel (WTI).
For perspective, if prices decline and resource revenue fell to its annual average over the past 10 years, Alberta’s current projected budget surplus of $2.4 billion would immediately flip to a deficit of $7.2 billion.
So, how can Alberta avoid the same fate as Saskatchewan?
Rather than wait and hope for continued high resource revenue, the government must align spending with more stable reliable sources of government revenue such as personal and corporate income tax revenue. By reining in spending, Alberta can avoid a budget deficit—and a run up in debt—when relatively high resource revenue inevitably declines.
This week, Saskatchewan provided yet another example of an ongoing problem in resource-rich provinces including Alberta. When provinces attempt to rely on volatile resource revenue to balance their budgets, they run the risk of budget deficits, which ultimately cost taxpayers. To stabilize provincial finances, the Smith government must rein in spending.
Subscribe to the Fraser Institute
Get the latest news from the Fraser Institute on the latest research studies, news and events.