Province forecasts $2.4B deficit in budget released on Monday

Saskatchewan Minister of Finance Donna Harpauer. (Herald file photo)

After three months of delay due to COVID-19, Finance Minister Donna Harpauer unveiled the 2020-21 provincial budget on Monday afternoon.

The anticipated deficit sits at $2.4 billion; however, Harpauer described it as a “pandemic deficit” and not structural. The government said the COVID-19 pandemic affected both sides of the balance sheet.

The government’s revenue is forecasted at $13.6 billion, down $1.2 billion or roughly eight per cent from the previous year. Harpauer said the decrease is the result of shuttered domestic and global economies combined with a collapse in oil prices. She said the government will not be increasing taxes this fiscal year.

The province is also seeing an increase in spending it’s mostly attributing to COVID-19. Spending will go up an estimated $1.1 billion as compared to the 2019-20 fiscal year, with $700 million of that attributed directly to COVID-19 response and stimulus efforts.

The province hasn’t modelled what would happen should there be a second wave of COVID-19. It said it has a $200 million contingency that could be used for any sort of response. That number was determined based on the experience to date.

Revenue declining across the board

In April, the government said that revenues could decline by between $1.3 billion and $3.3 billion. The government presented three scenarios.

On Monday, officials said the middle scenario, which projected a $2.2 billion decline in revenue. Resource revenues from that scenario were almost spot-on with what the province has seen so far. Tax revenue, though, has been impacted far less than officials previously projected. That puts the province somewhere between that $1.3 and $2.2 billion mark.

The estimates within the budget are more conservative than what’s been seen so far. The province has seen a 22 per cent decline in sales tax revenue. The budget includes a 30 per cent decline in the first quarter.

Taxes are down an estimated $350 million, or 4.6 per cent, from 2019-20. The PST is down $210 million, while fuel tax is down $634 million. There are also significant declines in tobacco ($19 million) and liquor ($13 million) consumption taxes.

Income taxes fell a relatively small amount and were mostly due to regular adjustments, not COVID-19 impacts.

In terms of resource revenue, the province is projecting a $753 million decrease in non-renewable resource revenues, a 43 per cent reduction from last year.

If the forecast holds, it will be the lowest non-renewable resource revenue the province has seen in 20 years.

Most of that decline comes from lower oil prices and production. Oil revenue is projected to all $493 million, with potash revenues declining $85 million and the resource surcharge and Crown land sales also falling.

The province estimates that a $1 change in the price of oil represents an $11 million impact, one cent in the exchange rate a $22 million effect and $1 on the potash market a $6 million change in the provincial budget.

Crown corporation revenue is also down, falling an estimated $127 million or 14.8 per cent from the 2019-20 fiscal year. That is due to a decrease in activity as well as COVID-19 supports such as payment deferrals and the waiving of SaskTel overage fees.

SLGA and SaskGaming saw a $206.7 million decline due to casino closures and closed restaurants and bars, which took away bulk alcohol and VLT income.

That’s partially offset by improvements in the Autofund, SGI and WCB.

Spending increase mostly attributed to COVID-19 measures

The province’s projected $1.1 billion in spending increases is mostly attributed to COVID-19. About $700 million can be directly attributed to virus response and stimulus measures.

The province further broke that down in terms of how that money was being spent. About half, or $375 million, is dedicated to year one of capital funding stimulus. That also includes $150 million for the accelerated site closure program, to go with the federal government’s $400 million for the clean-up of inactive oil and gas wells and facilities.

Newly announced is a $50 million top-up for First Nation and Métis organizations ($45 million) and the Community Initiatives Fund ($5 million) in recognition of lost revenue from casino closures.

Other COVID-19-related costs under that $700-million price tag include:

  • $50 million for the Saskatchewan Small Business Emergency Program (providing grants for small and medium-sized businesses directly affected by public health orders, up to $5,000 each)
  • $56 million in the federal-provincial cost-shared temporary top-up to the salaries of lower-income essential workers, costing the province $2.8 million
  • $13 million for the Canada Emergency Commercial Rent Assistance program
  • $2 million to support Saskatchewan residents forced to self-isolate who are not covered by federal supports
  • $4 million for an online dispute resolution system for provincial offences and installation of video conferencing equipment for the RCMP, municipal police and correctional facilities
  • $3 million for the acquisition and operation of temporary structures for additional inmate living space to support distancing and isolation during the COVID-19 pandemic

The $2.4 billion deficit also includes a $200 million contingency in case of emergency health or public safety challenges. There is an additional $200 million being spent on government-owned capital assets as part of the infrastructure stimulus and $150 million of spending being repurposed from existing budgets, all for COVID-19 response.

Redirected funds include money for:

  • $118 million for the health sector in new spending on hospital and testing equipment, PPE and operating costs
  • $7 million in emergency bursaries for students whose studies and employment are disrupted and changes to student loans
  • $6.4 million for social services COVID-19 response, including four $100 respite payments for caregivers of individuals with intellectual disabilities, funding for cost pressures at emergency shelters and a one-time cast benefit for income assistance clients
  • $5 million to partially offset higher premium costs of Western Livestock Price Insurance
  • $5 million for the province’s share of the national AgriRecovery set-aside program
  • $3.5 million for COVID-related expenses at the Provincial Emergency Operations Centre
  • $1.2 million in capital spending for a new electronic filing system at the Court of Queen’s Bench
  • $1 million for a one-time grant for the Regina and District Chamber of Commerce to partner with other regional chambers for a province-wide buy local campaign
  • $400,000 for vaccine research at the University of Saskatchewan and
  • $370,000 to New North, the northern communities’ association, to staff and maintain community checkpoints, as well as $20,000 for La Loche to encourage physical distancing and self-isolation.

That $200 million contingency, plus the emergency, capital and repurposed spending brings the province’s total COVID-19-related expenses to $1.5 billion. Some of that spending is offset by federal government contributions.

Health, education among departments getting non-COVID budget increases

The rest of the increase comes in the form of pre-COVID increases to the health and education budgets, as well as added support for the vulnerable and for municipalities. Those increases were revealed during the March spending estimates.

The Ministry of Health is allocated a record $5.8 billion, up $255 million or 4.6 per cent from the previous budget.

Within that is $3.7 billion for the Saskatchewan Health Authority, $118 million dedicated to the COVID-19 response, $435 million for mental health and addictions, $20 million to reduce surgical wait times and nearly $1.8 million for gynecologic-oncology programming.

The health budget also includes $15 million for planning, design and procurement for Prince Albert’s Victoria Hospital, previously announced when the province unveiled spending estimates in March. The new hospital will include a multi-storey addition with a new acute care tower and an adult mental health space in partnership with local Indigenous organizations.

The education budget amounts to $2.6 billion, also a record investment. That’s up $123.3 million or five per cent.

School divisions will receive $1.95 billion, four consolidation projects—including one in Rosthern—are allocated $46.9 million and $8.5 million is dedicated to building seven new schools across the province and renovating three more.

Education will receive an operating budget boost to cover the cost of inflation and enrolment growth, as well as to fully fund the new contract reached with Saskatchewan teachers.

There is no money allocated for increased classroom supports. Negotiations with the Saskatchewan Teachers’ Federation centred around increasing class size and composition. A committee has been struck to put forward solutions, but there was no dollar amount included in the budget.

The Ministry of Advanced Education is budgeted to receive $749 million, some for student loan programming and operating increases for universities, their affiliated colleges and technical institutes.

Among the First Nations and Métis Relations’ budget is $186 million for the COVID-19 recovery, as well as a $45 million grant to various Indigenous organizations that are left out without profits from casinos. The budget also includes $370,000 that’s already been given to northern communities to cover costs for community-based education and enforcement as a result of the pandemic.

The social services budget is up $50.6 million or 4.1 per cent to $1.286 billion. Of that money, $10.9 million is dedicated to third-party service providers working with those with intellectual disabilities and at-risk youth.

The provincial budget includes $715 million in 2020-21. This includes 50 sets of passing lanes, including three on Highway 3 from Prince Albert to Shellbrook and two on Highway 2 from Prince Albert to Highway 263. Also included is $52 million to upgrade and replace bridges and culverts.

As for agriculture, livestock producers are budgeted $10 million to manage COVID-19 impacts and $32.9 million will go to agricultural research through the Canadian Agricultural Partnership (CAP).

Within the energy and resources budget is $150 million for the Accelerated Site Closure Program and a new SaskFirst tax growth incentive.

The government relations budget includes more than $571 million for municipalities, $11.2 million for provincial libraries and $18.78 million for policing grants.

Within the trade and export development budget is a $4.2 million increase for international engagement, including three new international trade and investment offices in Japan, India and Singapore. It also includes $1.5 million to advance pipeline projects.

Innovation Saskatchewan has allocated $400,000 to a Saskatoon laboratory working on a COVID-19 vaccine.

The Saskatchewan Public Safety Agency is budgeted for $85.233 million. The funding includes $9.2 million to purchase a CL215T air tanker, which is expected to be delivered in 2023.

The province also expects deferred taxes and fees, which are set to be paid at a later date, to add up to about $675 million.

Debt up, but province expected to retain third-lowest net debt-to-GDP ratio

In terms of debt, the province is expecting public debt to increase by about $3 billion.

That includes $1.9 billion in operating debt to fiance COVID-19 related response. The province will offset its debt by using its existing cash levels, which sit at between $1.5 and $1.8 billion. They usually sit at about $750 million.

Of that $1.9 billion, about $1.3 billion is attributed to operational debt, with about $300 million in capital stimulus and the remaining for Crown corporations to finance COVID-19 payment deferrals.

Capital plan debt accounts for about $1.5 billion.

The province has a bad debt allowance of $40 million for the modest amount of payment referrals not expected to be paid back.

Lower interest rates mean the province’s interest levels will remain unchanged. About $1.1 billion in old debt will be refinanced at lower rates.

Saskatchewan is projected to have a net debt-to-GDP ratio of 20.8 per cent as of March 31, 2021, up from 15.1 per cent at the end of the 2019-20 fiscal year. The province had the third-lowest net debt-to-GDP ratio in the country. That’s expected to also be true at the end of this fiscal year.

The budget was released on the first day that Saskatchewan MLAs returned to the legislature for a 14-day sitting.

Like everything else, it didn’t return like normal. Due to COVID-19 restrictions, the government is allowed 10 caucus members and five from the opposition.

It was the first budget in Canada to include impacts from the COVID-19 pandemic and response.

This story will be updated throughout the day.