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A Spoonful of Sugar? Election budget may conceal a more uncertain economic future

The Saskatchewan government’s rosy economic outlook is based on shaky predictions

March 21, 2024

3-minute read

The Saskatchewan government’s election year budget does what you would expect an election year budget to do. It paints a picture of a robust, growing provincial economy capable of making what the government has touted as “record funding increases” to “schools, healthcare and municipalities,” or what the government euphemistically calls “classrooms, care and communities.”

And while this year’s budget records another deficit of $273 million, the Saskatchewan Party government believes that it will be back in surplus for 2025-2026, for what they no doubt hope will be the first year in another term of government.

In anticipation of the coming fall election, the Saskatchewan Party government has made a series of choices on the spending side to address longstanding shortfalls in the key policy areas of health and education. To be sure, the months-long teachers’ strike has raised the alarm on years of underfunding on the issues of classroom size and complexity. It has undoubtedly contributed to the government’s poorer than normal polling numbers in recent weeks.

This budget seeks to address these criticisms by injecting $2.2 billion directly into school operating funding, which is an increase of $180 million, or 8.8 per cent from the previous year.

Interestingly, the government has hinted at future shortfalls in postsecondary education by emphasizing a “one time” increase of 2.2 per cent in postsecondary funding after years of zero percent increases in its so-called ‘multi-year funding agreement.’

Recognizing the crisis in health care as negotiations begin with the province’s nurses’ union, the government has injected an additional $583.5 million, or 8.3 per cent over the previous year. While much of this spending is catch up after years of underfunding, there is no doubt that the government is attempting to diminish its critics in the public sector who have raised the alarm on funding shortfalls for years.

But when we scratch beneath the surface of the government’s rosy economic outlook, we find a much more uncertain and potentially grimmer economic reality. For all the talk of growth, the government’s own budget forecasts predict a rather anemic growth rate in real GDP of only one per cent in 2024. It also predicts a higher unemployment rate for the province, rising from 4.8 per cent in 2023 to 5.5 per cent in 2024.

As for revenues, the government’s projections also rest on some shaky assumptions—a kind of “fingers-crossed” hope that resource and commodity prices remain at least relatively stable over the next few years.

Take oil prices, for example. The budget notes that “The West Texas Intermediate (WTI) oil price decreased from an average of US$94.3 per barrel in 2022 to an average of US$77.6 per barrel in 2023,” with the WTI price expected to remain relatively flat over the next few years, hovering between $77 to $76 per barrel.

Similarly for potash, “the average realized price in 2024 is projected to be US$263.9 per KCl tonne, which is 22.0 per cent below the 2023 average.”

Again, the budget predicts potash prices will remain relatively flat for the next few years. So, there doesn't appear to be the chance of any windfall resource revenues riding to our rescue anytime soon.

With a razor-thin surplus of only $18 million predicted for 2024-2025, it would only take a small dip in either oil or potash prices to wipe out that very slight surplus.

However, it is the budget’s agricultural predictions that appear to be the most fanciful. As the government observes, “in 2023, Saskatchewan’s total crop production suffered a setback compared to 2022 levels due to drought conditions in some parts of the province.” However, the government is now forecasting a return to historical levels of crop production, with the following caveat:

The economic outlook expects a return to normal crop production. However, if there are persistent drought conditions in some parts of the province that lead to lower crop or livestock production, this could weaken the economic outlook.

Saskatchewan’s own Water Security Agency has predicted that “there is a higher risk of agricultural and hydrological drought this year,” while Agriculture Canada predicts that “below normal runoff will result in minimal recovery for dry soils and surface water supplies that have been reduced from previous years of drought.”

The government’s expectation that crop production will return to historic norms was already suspect in a time of deepening climate crisis, but it seems even more unrealistic, given the current drought conditions on the ground that the government is completely aware of.

As we saw with the 2023 budget, another equivalent drought and subsequent crop insurance payout could very easily blow a huge hole in the government’s budget predictions. It is telling that, recognizing this economic reality, the government has committed no new money in the budget to address the devastating effects of climate change in the province.

All of this leads us to conclude that the government’s predictions of returning to surplus next year all rest on very shaky foundations and could hint at austerity budgets in the future.

Should any of these assumptions prove not to meet the government’s expectations, surplus or even balanced budgets cannot be guaranteed without either sufficient tax increases or spending cuts.

In this respect, the government’s election budget may be the spoonful of sugar before the bitter medicine comes. We will see if it is sweet enough to convince the public to give this government the chance to administer that medicine if their bullish budget predictions fail to materialize.

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