Provincial Budgets

March 23, 2022 | 18:30

Saskatchewan Budget (FY22/23) — Solid Ground

Economist

Senior Economist and Director
Economics

Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing regional economic, fiscal... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing regional economic, fiscal... (Read more)

The Province of Saskatchewan is projecting a $463 million deficit in FY22/23, much smaller than the $2.2 billion shortfall now expected in FY21/22 (previously $2.6 billion). The improvement comes as spending pulls back from very elevated levels, especially in agriculture where drought-related insurance payouts and support were significant. The deficit will weigh in at a modest 0.5% of GDP and, with this budget based on $76 WTI oil, could very well be balanced by the time the year is done. That said, the Province doesn't officially aim to balance the books until FY26/27, with small deficits in the interim.

All told, FY21/22 was a unique year, with the benefit of surging oil and potash prices limited by the hefty drought cost. But, assuming a more normal year on the agriculture front, the shortfall will shrink materially in FY22/23, and the debt ratio will stabilize.

There were few major new policy initiatives in this budget.

Total revenue is projected to dip 1.9% to $17.2 billion in FY22/23. Taxation revenues, GBE net income, federal transfers and other own-source revenues (including items like investment income) all fall modestly after very strong showings in the prior fiscal year. Combined, those declines are enough to outweigh a jump in resource revenues, which rise by $473 million. The Province is assuming that WTI averages $75.75 in FY22/23, which is still well below levels on budget day ($114). Potash prices, which have surged alongside the Russia-Ukraine conflict, are expected to average US$407, while the Canadian dollar sits at 80 US cents. The restraint in the loonie despite sharply higher commodity prices is a major boon for the province, as a stronger currency would ordinarily bite into part of those revenues.

Note: A $1 increase in oil prices would lift revenues by $14 million; a $10 increase in potash would add $50 million; and a 1 cent increase in the value of the Canadian dollar would cut $39 million.

Revenues also get a small boost from an expansion of the 6% PST to cover admission fees in areas such as sports and entertainment.

The revenue outlook is also based on reasonable economic growth assumptions. Real GDP is projected to grow 3.7% in 2022 before softening to 2.5% next year. Our call is very similar at 3.8% this year, but we expect a bit more persistence with 3.0% growth next year as strong resource prices linger. The key message here is that the Saskatchewan economy has effectively recovered from the pandemic, and looks to be better supported than during the five years before COVID, where growth averaged just 0.5%.

Total spending is projected to fall sharply this coming fiscal year, to $17.6 billion, down $2 billion year-over-year. Lower spending in agriculture accounts for all of the decline, as drought-related insurance payouts and support lifted spending in that area by $2.3 billion above initial expectations in FY21/22. Over the medium term, total spending is held to 2% annualized growth through FY25/26, which could be a challenge in this inflation environment.

Meantime, Saskatchewan continues to lean heavy on capital plan spending, which will run at a still-elevated $3.2 billion this fiscal year. That matches peak spending seen in the 2016-18 period. Transportation and municipal infrastructure are big target areas, along with Crown Corporations such as SaskPower. Overall spending is expected to peak next year.

Total borrowing requirements will decline this year, thanks to a smaller deficit, with the total program pegged at $3.5 billion, down from $4.3 billion in the prior fiscal year. That said, because of surging nominal output, net debt will fall to 18.8% of GDP in FY22/23, from 19.0%, or roughly 2 ppts above Alberta for the second lowest in Canada. The ratio then hovers around the 20% mark in the years ahead.

The Bottom Line: Saskatchewan has found solid fiscal footing again, thanks to resurgent resource prices. Near-balanced budgets for the coming few years and a still relatively-low net debt burden are supportive from a credit perspective.