Province forecasts return to surplus in 2024-2025, return to pre-COVID conditions by 2022

Donna Harpauer

Finance Minister Donna Harpauer says the province will stop running a deficit by 2024-2025 in a first quarter budget update and a medium-term outlook on Thursday.

The projected deficit for the 2020-21 fiscal year now sits at $2.1 billion, a $296 million improvement from the original budget forecast. The government’s medium-term outlook includes progressively smaller deficits over the next three years before a predicted $125 million surplus in 2024-25.

“Saskatchewan’s fiscal  foundation is solid, and our province’s economy continues to reopen and recover from the effects of the global pandemic,” Harpauer said. “We have seen many positive signs in recent months. We are also aware that certain sectors and industries continue to face significant challenges.”

The budget assumes that public health measures to combat COVID-19 would be successful, both  in Saskatchewan around the world. It also assumes that outbreaks will be managed on a local basis. The government is forecasting a return to pre-COVID conditions in 2022.

Harpauer said there would be no tax increases, but there will be two years of austerity budgets. She expects rapid growth in the two years following the end of the pandemic.

“We fully recognize that we are going to yes have austerity budgets, but that doesn’t mean cutting,” she said. “That just means minding spending. Are we to have any large grandiose announcements for the next four years? I think not, unless it is going to stimulate further growth into the future.”

She said previous history shows the province can mange austerity budgets without cuts.

“We have completely changed the structure of our budgets in the out years. We are basing them on still keeping our non renewable resources at 10 percent of the budget, then recovering in two years and then growing from there,” Harpauer added. “We are projecting a normal growth pattern going forward from that two year benchmark. Will we have to be mindful of spending? Yes we will. Do I foresee  cuts? No I see growth.”

The Saskatchewan economy is now forecast to contract 5.5 per cent in 2020, an improvement from the predicted 6.3 per cent decline forecast in the 2020-21 Budget. In 2021 Saskatchewan’s economy is projected to rebound with real GDP growth of 4.6 per cent.

Harpauer said she’s confident in taking these numbers to voters in a fall election.

“Our party will present a platform. Obviously it will be fully costed, and it will be costed on the numbers you are seeing today,” she said.

Harpauer said the province’s fiscal foundation is solid as economies begin to recover from the COVID-19 pandemic’s shock. She said the people of the province understand the benefits of balanced budgets, and expect the government to live within its means.

“We were in the position pre-COVID where we had an enormous cash availability. We were going to be able to write down debt with that which brings down our interest costs and we were able to start investing larger money into our areas of priorities which is education, childcare and public safety. So I think the people of Saskatchewan, I am confident the people of Saskatchewan recognize the benefits of a balanced budget I don’t think they want to pass deficits onto the future generations and I think will be supported that we need to do our best,”  she explained.

At the  first quarter, revenue is forecast to be $14.05 billion, an increase of $398 million, or 2.9 per cent, from budget. This is largely due to $338 million of federal funding under the federal-provincial Safe Restart Agreement. A modest $56 million increase in resource revenue is also forecast at first quarter. Harpauer is optimistic that the forecast can be achieved and she credited federal injections of money as an important part.

Expenses are forecast to be $16.18 billion, an increase of $103 million, or 0.6 per cent, from budget. The forecast includes a $72 million increase for the health system, a $70 million increase for municipalities and a $35 million increase for new supports for the tourism industry.

Earlier this month, Premier Scott Moe announced that the province will invest $40 million from the budget’s $200 million health and public safety contingency to ensure more resources are available for safe classrooms. This investment is reflected in the first quarter update, and a $160 million contingency remains.

The planning for this took place after seeing that divisions had savings of $40 million after schools closed in March and saw the savings in things like utility bills and transportation,

“So the first measure that we did was for school divisions to be able to put together that number, and it’s just shy of the $40 million in savings. In essence these school divisions needed time to start to think about what their plans for reopening would be, and what their additional costs would be,” Harpauer said.

The timing of the announcement was due to having a better understanding of the positions of all school divisions with some seeing more savings than others.

“So in recognition of that we had given some thought as to some may need funding and others may not. Now we have got more decisions to make because the Federal Government has also stepped into this space. And so it was basically how long it takes to put those plans together,” Harpauer said.

Economic numbers are strong according to Harpauer including housing starts and wholesale trade.

“We would have a little bit of an improvement, not as large  because of the oil price obviously because we had budgeted $30 a barrel, we are now seeing on average it will be $37.5 which is an improvement,” she said.

There was also less money from Crown Corporations because of payment deferrals.

Structural changes in the budget were important and they don’t  foresee cuts to the public service.

At first quarter, public debt is forecast to decrease by $455 million from budget, primarily due to the improvement in the deficit forecast and lower Government Business Enterprise debt. Harpauer said that all jurisdictions will see their debt increase

She explained that the province has the third lowest net debt-to-GDP ratio in Canada and they expect

The province’s medium-term outlook projects a $125 million surplus by 2024-25.

Revenue will not return to pre-COVID crisis levels until 2022-23, and they are targeting expense growth at 1.5 per cent per year. Deficits of $1.4 billion (2021-22), $855 million (2022-23), and $340 million (2023-24) are forecast before a return to surplus in 2024-25.

The outlook is consistent with the province’s economic forecast and is based on a reopening of the economies in Saskatchewan, Canada and globally at its current pace, and that any resurgence in COVID-19 can be successfully mitigated.

Over the course of the medium term, public debt is forecast to rise to $33.6 billion by 2024-25, primarily for needed infrastructure.

“Moving forward our government is focused on creating the right environment for our economic  recovery to drive our revenue growth, continue to invest in the priorities of Saskatchewan and carefully manage spending to return our province to balance,” Harpauer said.

NDP Finance Critic ‘astounded’ by Minister’s comments

The Saskatchewan NDP criticized the provincial government for being out of touch with Saskatchewan voters, and accused Harpauer of creating a budget that would lead to austerity.

NDP finance critic Trent Wotherspoon said it’s a sign that Saskatchewan needs new leadership.

“I was rather astounded to hear the comments from the finance minister today,” he told reporters. “I heard the finance minister suggesting that this is what she thinks Saskatchewan people desire: austerity and cuts and an economy left in recession and needs not being met in classrooms. I think that nothing could be further from the truth.”

Wotherspoon said Saskatchewan residents were counting on the government to step up and meet the financial challenges brought on by the pandemic. He vowed his party would bring forward a financial plan that would succeed where the Sask. Party failed.