‘It’s not a cakewalk’

Canada’s first provincial COVID-19 budget sees a gaping financial hole. But the province’s finance minister believes it’s one Saskatchewan can pull itself out of

Donna Harpauer

Monday’s provincial budget, with its $2.4 billion deficit, was “very difficult” to put together, Saskatchewan’s finance minister said Monday.

The deficit — which comes after years of the ruling Saskatchewan Party cutting and tweaking to where it could to inch the province back into the black — has been caused by a pandemic, not by structural difficulties, Donna Harpauer said.

Most of the spending remains intact from the estimates provided in March. Some additional spending has been added, about $700 million worth, to respond to the virus and launch a stimulus package. The budget is the first in Canada to attempt to account for the effects of COVID-19. It’s also the Saskatchewan Party’s last before this fall’s provincial election.

In that election, Premier Scott Moe will have to hope for a better outcome than the last premier to stare into such a deep fiscal hole.

Some of the numbers are the direst the province has seen since the end of the Grant Devine era, estimates show, with resource revenue on track for its lowest level in 20 years.

But 2020 is very different from 1991.

“Prior to COVID-19 we had gone through the pain to ensure that our revenue was higher than our expenses, and we were there,” Harpauer said.

“We made decisions to correct that (structural deficit). Assuming we continue and build our economy the way we plan to do … to bring those revenues back…I think we can build our economy enough to sustain the resources we have going forward.”

Harpauer said it won’t be easy. She said spending restraint might come, perhaps in the form of zero per cent salary increases or a hiring freeze.

“It’s not a cakewalk,” she said.

Seeing the province back to where it was – with deficits and ballooning debt — isn’t the budget Harpauer wanted to deliver. The Saskatchewan Party had promised a return to balance. A modest surplus was expected before the pandemic, possibly around the $100 million mark.

“When you are the finance minister and you really believe you can deliver a solid budget with a surplus, and we were going to pay down debt, and we had increased spending and we were able to afford it, and you have something like a pandemic strike, you almost go into mourning,” Harpauer said.

“How does this look? It looks daunting. I firmly believe we can (get back). It’s just going to be a few more years yet.”

Harpauer said the fundamentals are there. She said, multiple times, that the province has what the world needs — food, fuel and fertilizer. That, though, means a reliance on trade and the export market that adds another level of uncertainty to Saskatchewan’s economic outcome. Not only does the province have to try to navigate its own COVID-19 world, but it also has to take into account the situation of its trading partners.

“The uncertainty in this budget, particularly on the revenue side, is larger than ever before,” Harpauer said.

“One thing we know for sure is the numbers aren’t going to be dead-on. I could go through a whole list of the uncertainties we have that is going to change those numbers. We think we have conservative estimates built-in. We have a contingency built-in, so that we could at the very least contain our expense side.”

Those conservative estimates include a 30 per cent reduction in PST, higher than the 22 per cent reduction seen to date. They also include the assumption of an oil price of $30 per barrel. It was trading at $29.65 WTI as of press time.

The contingency is $200 million, plus a $40 million allowance of bad debt in case deferred bill payments don’t come. It’s not a ton of wiggle room. As Harpauer said Monday, if another catastrophe strikes the province, such as total crop failure, the debt would have to get even bigger.

Still, Harpauer argued, Saskatchewan is in a better position than other provinces. While private-sector forecasters have said the province will grow more slowly than those that are less reliant on natural resources, Harpauer pointed out that the $2.4 billion deficit is a much lower number than the $5 billion floated in Manitoba or the $20 billion figure some have said might be on the horizon for Alberta.

Better still, fewer people lost work and fewer businesses shut their doors in Saskatchewan. While, as of the latest count, about half of businesses still haven’t reopened, that number is higher than the provincial average and beats both of the province’s neighbours.

For that, and for the flattened curve of COVID-19, Harpauer thanked the residents.

“Thanks to the people of Saskatchewan, our response to the pandemic has been successful. And thanks to the people of Saskatchewan, our economic recovery will be strong,” she said.

“We faced the pandemic together and now we are reopening the province together and will rebuild and recover together.”

That recovery, though, might not be fast. While Harpauer is confident the province can get back to where it once was, she’s worried that some sectors will remain shuttered, slowing growth. That includes areas like tourism and the hospitality sector, suffering from a shutdown on international and even interprovincial travel and a moratorium on large events.

As time goes on, the effects will become clearer. Revenue and sales tax revenues are seen now, but other things, such as income taxes can have a one- to two-year delay before their effects are fully seen.

“We don’t know with deferred payments what is going to be paid. We won’t know how many businesses are actually going to survive this, even with the federal and provincial programs,” she said.

“We don’t know how much erosion this will cause. Hopefully none — I believe there will be some.”

As for what that means, Harpauer was noncommittal. While a tax increase is off the table for this fiscal year, the province’s full suite of taxes is looked at each time a budget comes forward.

That option might be on the table, but Harpauer said it’s unattractive as Saskatchewan feels its taxation levels are competitive and wants to keep them that way.

She also feels such a measure would be unnecessary.

“I think it will be looked at. I’m not of the school that we absolutely can’t recover,” she said.

“If (recovery) is totally impossible, that’s where we go. But I just don’t believe that.”