Saskatchewan Budget 2021

Highlights:

  • Saskatchewan pencils in a higher deficit in FY 2021-22 of $2.6 billion
  • Expenses will increase 7.1% due to continued costs associated with fighting the COVID-19 pandemic
  • Revenues will grow by 2.7% as tax revenues and royalties improve
  • Net-debt-to-GDP ratio is still the lowest across all provinces, growing to 21.7% in FY 2021-22


Overview

On March 6th, Finance Minister Donna Harpauer delivered her fourth budgetary address, in which she affirmed is the “right budget for Saskatchewan people.” The budget’s three pillars this year, “protect, build, grow,” will drive the province’s recovery. The province projects a record deficit of $2.6 billion in FY 2021-22, up $746 million (+40%) from a downwardly revised $1.9 billion in FY 2020-21. The Minister also unveiled a path to balance by FY 2026-27 with the deficit contracting to $1.7 billion in FY 2022-23 and diminishing to $1.2 billion and $770 million in FY 2023-24 and FY 2024-25 respectively. Spending will grow by $1.0 billion this year, largely due to a considerable increase in health and education spending to fight COVID-19 and support the recovery. As Minister Harpauer emphasized, “we’re not there yet.” To date, the fight against COVID-19 is costing the province $4.8 billion, $1.5 billion of which is allocated to FY 2021-22. Revenues are projected to grow by $383 million, thanks in part to higher provincial sales tax receipts and oil royalties. Despite this year’s larger budget deficit, Saskatchewan will continue to boast the lowest debt-to-GDP ratio among the provinces, expected to reach 21.7% in FY 2021-22.

“Protect. Build. Grow.” Expenses mount to support the recovery

In Budget 2021, expenses will grow by 7.1% from FY 2020-21 to $17 B, largely due to higher spending on health, education, and social services and assistance as part of the province’s three pillars: “Protect. Build. Grow.” The largest allocation will be health spending, up 5.8% to $6.5 billion for FY 2021-22. Saskatchewan will spend an additional $90 million in COVID-19 response this year. To date, the province earmarked $4.8 billion across all departments in the fight against COVID-19, with $1.5 billion of the expense allocated to FY 2021-22. Allotments to education will grow 11.6% to $3.8 billion. Some of the increase in costs will be offset by $21 million of the Federal-provincial Safe Schools funding carried over to the 2021-22 school year. However, the majority of expenses associated with operations and 2% salary increase for teachers will be borne by the province. Saskatchewan has also earmarked nearly $76 million in child-care funding as part of a 4-year commitment to create 750 new licensed childcare spaces. The Ministry of Social Services and Assistance accounts for $1.6 billion in expenses.

Even in the face of the pandemic, Saskatchewan remains committed to its pre-pandemic Growth Plan goals for the 2020s. This includes $200 million for the Accelerated Site Closure Program (a federally-funded program to clean up abandoned oil and gas well sites), which will support over 2,000 jobs. Saskatchewan will also continue to devote funds ($175 million in FY 2021-22) to provide all SaskPower customers with 10% rebates on their power bills. Finally, $276 million is dedicated to Municipal Revenue sharing, as part of the province’s $465 million in municipal investment.



Higher tax receipts and royalties to drive modest revenue growth

Revenues will grow 2.7% to $14.5 billion in FY 2021-22, but are not expected to return to pre-pandemic levels until FY 2022-23. Federal government transfers will fall 9.6% this fiscal year, as one-time federal transfers (such as the Safe Restart and Safe Return to Class grants) wind down. But the decline in federal transfer revenue will be more than offset by growth in other revenue sources. Tax revenue is projected to grow by $532 million (+7.9%), largely due to higher provincial sales tax (assuming a recovery to FY 2019-20 levels) alongside improving corporate income tax receipts. Non-renewable resource revenues are forecasted to increase by $232 million (+21.2%), with higher oil and natural gas revenue accounting for 60% of the growth. Budget 2021 expects noticeable rebounds oil prices—WTI to rise from an average price of US$42 per barrel in FY 2020-21 to US$54 per barrel in FY 2021-22—and production. RBC’s stronger oil price forecast (at an average of US$64 per barrel this year) provides some upside risk to non-renewable resource revenue. A $1 increase in WTI prices would generate an additional $14 million in royalties. Potash revenues are also expected to grow modestly in FY 2021-22, with prices slightly higher and production levels elevated.



$3.1 billion capital plan will boost economic growth and create jobs

This year, Saskatchewan has allocated $3.1 billion in capital investment, a 12% increase from FY 2020-21, which the province expects will support 17,500 jobs. Big ticket items include $830 million (an annual increase of 16%) for the operation, maintenance, building, and improving of roads and highways in Saskatchewan alongside $553 million for the transportation infrastructure. A $162 million allocation to healthcare capital is devoted to two urgent care centres (Regina and Saskatoon), two hospitals, and five separate long-term care homes in the province. Close to $190 million will be invested in education capital.

Mounting debt-to-GDP level still lowest in Canada

Saskatchewan remains the Canadian province with the lowest net debt-to-GDP ratio as of FY 2020-21, finishing the year off at 19%. The ratio is projected to grow to 21.7% by the end of FY 2021-22, still the lowest among provinces that have released their budget this spring. Net debt is expected to rise further to 26.3% of GDP by FY 2024-25.



In FY 2021-22, Saskatchewan will borrow $4.7 B, $2.3 B of which is required to fund the operating deficit. FY 2020-21 will end on a rosier note than expected, with public debt $0.8 billion lower than previously anticipated due to decreased Government Business Enterprise (GBE) debt (resulting from GBE investment gains). A low interest rate environment will help the province manage growing debt levels. Nevertheless, any unexpected increase in rates would pose a risk. A one percentage-point rise in interest rates would result in higher debt charges of ~$69 million.

Minister Harpauer delivered a message of hope during her budgetary address. “A strong Saskatchewan. That is what we have to look forward to in the months ahead as we emerge from the pandemic.” Saskatchewan’s fiscal position withstood the pandemic’s blow better than many other jurisdictions. While higher debt levels will cause debt servicing costs to mount in the years ahead, the situation should remain manageable. Saskatchewan is deploying the resources to both fight the pandemic and bolster the recovery. The government’s medium-term path is prudent with the deficit set to decline over the next three years by containing spending growth and committing to balance the budget by FY 2026-27. This careful approach to balancing the books is appropriate to ensure a sustainable recovery. Harpauer’s 2021 budget charts the course for Saskatchewan “into the strong recovery that will follow.”


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Carrie Freestone is an economist at RBC. She holds a Bachelor of Arts (honours) in Economics from Queen’s University and a Master of Arts in Economics from the University of Ottawa.

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