• A $483 million deficit now replaces the previous billion-dollar surplus projection in 2023-24 after an unexpected surge in crop insurance claims grew expenditures.
  • The budget’s bottom line stays in the red in 2024-25 (-$273 million) before returning to modest surpluses in the following two years.
  • Expenditures in 2024-25 are projected to shrink (-3.5%) after a significant spending increase in the previous year (9.7%)
  • The government expects revenues to shrink for a second consecutive year in 2024-25 (-2.6%) as normalizing commodity prices pull down revenues from corporate income tax.
  • The budget projects higher provincial debt burden tracking but will keep net debt-to-GDP among the lowest in Canada.

Fading fiscal tailwinds

Booming commodity markets in recent years put Saskatchewan’s financial position on solid footing, but as the economic backdrop weakens, those fiscal tailwinds appear to be fading.

High prices for key exports had supported strong income from corporate taxation and royalty revenues, helping the province recover from heavy pandemic spending. However, the anticipated billion-dollar surplus for 2023-24 has vanished, leaving a $483 million deficit in its place. The government expects to carry red ink into the upcoming fiscal year with another $273 million deficit in 2024-25.

The $1.5 billion setback in 2023-24 is largely from expenditures widely exceeding Budget 2023 projections as revenues declined. The government intends to cut expenditures by 3.5% in 2024-25 from the upwardly revised 2023-24 level. But with the upcoming election in mind, tax increases were left off the Budget 2024 agenda—despite the unexpected spending boom in 2023-24 and expectations for revenues to shrink further in the upcoming fiscal year.

A heavier debt load and downward revisions to the province’s nominal GDP growth forecast (relative to last year’s forecast) have prompted the government to boost its net debt-to-GDP ratio projection from earlier estimates. Net debt-to-GDP is now expected to peak at 14.6% in 2025-26 before edging lower to 14.3% in 2027-28.

Expenditure cuts planned after an unexpected spending increase

Saskatchewan nixed previously announced expenditure cuts for 2023-24, boosting spending 14% ($2.2 billion) from Budget 2023 expectations instead. Nearly half of the unexpected spending increase came from agriculture-related costs ($1.1 billion)—which soared 40% year-over-year. This was largely reflective of increased crop insurance claims as droughts and wildfires hampered the industry last summer.

Healthcare costs also rose $488 million from Budget 2023 expectations on account of higher wages and costs related to the Saskatchewan Medical Association.

The expenditure cut that was slated for 2023-24 (-2.5%) is now on deck for 2024-25. The province now expects spending to shrink 3.5% (-$731 million) as high crop insurance payouts roll off the province’s income statement. As such, agriculture is set to see the largest setback in spending (-$1 billion). Protection of persons and property, and economic and community development will also see funding decline (-$129 million).

All other expense categories, however, will see an expenditure boost. Education is slated to see the largest increase of $125 million—with the majority ($28 million) dedicated to university grants and health-sector training seats. Under this allocation, we don’t see the current spending plan for education putting a swift end to province-wide teacher strikes which unfolded earlier this week. Instead, potential new wage deals could add upside risk to expenditure in the upcoming fiscal year.

Revenue to shrink for second straight year

Elevated commodity prices in the 2022 tax year contributed to record income from corporate taxes in the 2023-24 fiscal year (8.5%)—much of which was offset by weaker non-renewable resource revenues (-48%). That kept total provincial revenues down from fiscal 2022-23 (-1.0%).

The higher base in 2023-24, along with a softening economic backdrop, however, has prompted the government to reign in corporate income tax projections (-44%). Income from this provincial revenue source is down $950 million in 2024-25. This will be the main blow to provincial revenue in the upcoming fiscal year—which, in total, is expected to drop 2.6% from the previous fiscal year.

With that said, we see a different outlook unfolding for Saskatchewan. Stabilizing fertilizer markets and a potentially better growing season could lead to an earlier economic rebound. This has the potential to mitigate lost revenue from corporate income and provincial business enterprises, adding upside to total provincial revenue.

Crown sector accounts for more than half of capital investments

Saskatchewan announced plans to invest $18 billion in capital expenditure over four years—$4.4 billion of which is slated for the upcoming fiscal year. More than half of the capital investment will go to Saskatchewan’s crown sector each year, including an average of $1.4 billion annually for SaskPower to replace aging infrastructure and support the ongoing energy transition.

Saskatchewan maintains second lowest debt burden

The larger debt burden laid out in Budget 2024 will set Saskatchewan’s net debt-to-GDP ratio on an upward trajectory. The province now sees the debt burden peaking in 2025-26 at 14.6% before dipping down to 14.3% in 2027-28. Still, this represents a modest change from Budget 2023 projections and keeps Saskatchewan’s net debt-to-GDP ratio among the lowest in the country.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.