Saskatchewan records budget surplus but remains on resource revenue roller-coaster
On the heels of a nearly $1.2 billion surplus in 2022/23 fuelled by a windfall in resource revenue, the Moe government had a golden opportunity to improve Saskatchewan’s finances for the long term. But while the government’s new budget projects another $1 billion surplus in 2023/24, at current spending levels, it will only last so long as resource revenues remain high.
Let’s start with the positives in the budget.
The Moe government decreased provincial spending (excluding interest costs) by $451 million compared to last year. At the same time, revenues are forecasted to increase nearly $5 billion from levels seen in 2019/20—the last fiscal year before the pandemic. The recent surge in revenue has been driven by inflation and high commodity prices. Non-renewable resource revenue is projected to exceed $3.3 billion this year, which is significantly higher than the average of $2.1 billion received from 2010/11 to 2019/20.
The windfall of revenue allowed the Moe government to pay down $520 million of its debt last year and the province forecasts it will pay back another $840 million this year. This is a step in the right direction in reducing the debt burden for Saskatchewanians.
Beyond 2023, the fiscal plan also forecasts surpluses over each of the subsequent three years. However, the plan assumes oil prices (as measured by WTI) will remain above US$75 per barrel from now until March 2027. Should oil prices decline from what is expected, the government would likely not achieve surpluses in future years.
Crucially, the budget shows signs that the government is repeating some of the same mistakes of past governments. If the Moe government is not careful, it will end up spending away a lot of the windfall of revenue while setting Saskatchewan up for another ride on the resource revenue roller-coaster.
Saskatchewan’s history is quite clear. When the provincial government uses windfall resource revenue to increase or maintain high levels of government spending, the province falls back into deficits when commodity prices and resource revenues inevitably decline.
Consider 2006, the start of a resource boom in Saskatchewan. The government enjoyed routine surpluses while provincial spending (on a per-person basis, adjusted for inflation and excluding debt interest costs) increased from $10,443 in 2005/06 to $14,403 in 2015/16. Unsurprisingly, the province fell into deficit in 2015/16 when resource revenues plummeted, and deficits persisted until the recent windfall brought the province back into surplus in 2022/23. These deficits resulted in billions of dollars of government debt (even before the pandemic) that Saskatchewan taxpayers must ultimately finance.
Unfortunately, the Moe government has to some extent repeated the mistakes of the past. In 2021/22, per person (inflation-adjusted) program spending reached its highest level on record at $16,843. Even excluding COVID-related spending, that year ($15,585) was still the highest on record.
In 2022/23 relatively high spending continued, and in the fiscal update last fall, the Moe government introduced $450 million in affordability payments—$500 cheques to be delivered to roughly 900,000 residents 18 years and older. While many Saskatchewanians are surely struggling with the cost of living, such spending was a slippery slope towards big deficits if the spending became permanent. Shortly after, the Saskatchewan government introduced an additional $178.5 million in unbudgeted spending for various ministries and programs in 2022/23.
Government spending is expected to drop in 2023, but per-person (inflation-adjusted and excluding debt interest) spending levels remain above where they were before COVID. Provincial per-person spending will reach $14,790 in 2023/24—an increase of about 5 per cent from 2019/20.
If the Moe government had simply returned per-person spending to pre-pandemic levels, it could have used this opportunity to help avoid the boom-and-bust cycle while improving provincial finances for the long-term. The surplus would’ve been $787 million higher than currently forecast and the Moe government could’ve used this additional money to pay down more debt, which would help reduce the amount of debt interest payments (projected to reach $812 million in 2023/24) Saskatchewanians must pay.
To avoid more deficits in the future, the windfall of resource revenue could have also been used to reintroduce a rainy-day account, which would constitutionally limit the amount of resource revenue available for annual spending by saving during the good times (as Saskatchewan is currently experiencing) to help avoid deficits during bad times (periods of relatively low resource revenue).
Laudably, Saskatchewan’s 2023 budget includes surplus projections over the next four years. However, the Moe government missed a golden opportunity to improve Saskatchewan’s government finances for the long term by using more of the revenue windfall to reintroduce a rainy-day account or pay down substantially more debt. The province could be in fiscal trouble again once the resource revenue windfall inevitably ends.