Government COVID-19 deficit scenarios could reach $3.3 billion

Donna Harpauer

The provincial government could lose between $1.3 billion and $3.3 billion in revenue from a combination of an oil price crash and the pandemic-induced economic slowdown, they revealed Friday.

The Province of Saskatchewan announced three possible scenarios in light of what they refer to as a “pandemic deficit” related to the COVID-19 crisis. Finance Minister Donna Harpauer took part in the daily COVID-19 update press availability and outlined the three scenarios.

“The 2020-2021 deficit is not a structural deficit it is a pandemic deficit and we will manage through it. We will develop a fiscal plan to bring our budget back to balance over time because we have the strength and the foundation here in Saskatchewan here to do it,” Harpauer said.

That difference — a pandemic deficit as opposed to a structural one — puts the province in a different situation than it was a few years ago.

The ranges put forward a potential decrease in revenue of about $1.3 billion, $2.2 billion and $3.3 billion in relation to the 2019-2020 mid-year forecast of $15.4 billion.

The potential revenue declines are based on three economic scenarios. Each scenario includes assumptions on a number of economic factors, including the duration of current economic restrictions, how soon resource prices may recover and anticipated consumer behaviour once restrictions are lifted.

Real GDP scenarios for 2020 are all negative and range from a decline of 4.1 per cent under the most optimistic scenario to a decline of 14.9 per cent in the most pessimistic scenario. These are related to a number of possibilities.

“One being the length and severity of the pandemic, another the duration and overall impact of social distancing measures, third the success of government fiscal and monetary policy around the world to support the global economy, another is the length of time it takes oil prices to recover and there is the potential changes in consumer and business behaviour once the pandemic passes,” Harpauer said.

The deficit scenarios exist because of the unprecedented challenges.

“Financially I must say that Saskatchewan is better positioned than just about every province in Canada to address this challenge but the impact is still very significant,” Premier Scott Moe said.

“Which should come to no surprise to anyone when you consider how much the economy ha slowed today, not just here in our province but across our nation and around the world.”

Harpauer noted that the challenges are unprecedented and worldwide but explained that the financial structure of the province is strong. She said they developed the scenarios because they thought it was important to show a range of how great the impact might be. The province is only less than three weeks into the new fiscal year the timeline for restrictions remaining in place remains unknown.

“It is still incredibly difficult to forecast revenue with any degree of certainty,” Harpauer said.

However, they expect all revenues to decline in fiscal 2020-2021. Harpauer explained that they are currently managing spending to the budget estimates of March 18.

“Our government has committed to provide all financial resources necessary to address the COVID-19 pandemic and this will likely result in spending increases beyond the amount allocated in the 2020-2021 finance estimates. Estimates will also be increased due to programs we have announced such as the Saskatchewan Small Business Recovery Program and the Self Isolation Reports Program. There may be further spending increases based on Federal relief decisions,” she said.

The fiscal foundations for the province are solid as the province has maintained liquidity and the net debt to GDP ratio among the lowest in Canada.

“Saskatchewan was on track for a surplus in 2020-2021 prior to going into the COVID-19 pandemic and the oil price collapse,” she said.

Harpauer explained that the federal government has come up with many plans, to their credit, and the province’s role is to see if there are gaps and then focus on the recovery so that there are jobs to return to when the pandemic has passed.

The province has not had discussions about allowing municipalities to run deficits and other things such as cutting the civil service or raising taxes. Harpauer said existing public sector contracts will be honoured.

“At this point in time we are not having those discussions of the next budget. We are only, what three weeks into this budget and you are asking me to foreshadow what is in my next budget,” Harpauer said.