Provincial Budgets

March 20, 2024 | 18:56

Saskatchewan (FY24/25) — Revenue Gully

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

The Province of Saskatchewan is projecting a $273 million deficit in FY24/25 (a small 0.2% of GDP), a touch narrower than the $483 million now estimated for FY23/24. The latter is a modest downward revision from the most recent fiscal update, but well down from the initial $1.1 billion surplus projection. The deficit comes as spending pressure builds, while revenue dips alongside a drop in tax receipts and subdued potash royalties. Looking ahead, Saskatchewan expects a return to small surpluses by FY25/26 and through the forecast horizon.

Much of this budget is focused on allocating spending across a number of priority areas, especially health care, this year and in the near future. There are no major tax or significant policy changes.

Total revenue is projected to slip 2.6% to $19.9 billion in FY24/25. Taxation revenues fall off more than 5%, entirely due to lower expected corporate tax receipts after a very strong year. Non-renewable resource revenues are always a wildcard, and they are expected to rise modestly to $2.7 billion in FY24/25, but only after missing expectations by a long shot in FY23/24. Resource revenues are now tracking at $2.4 billion for the fiscal year soon ending, down $950 million from the budget plan, largely due to weaker potash revenues.

The Province is assuming that WTI averages $77 in FY24/25, which is perfectly reasonable given levels on budget day. Potash prices, which have fallen sharply in the wake of the Russia-Ukraine conflict, are expected to average US$268, down from $284 in FY23/24 (initially assumed at $369). And, the Canadian dollar is pegged at 74.4 US cents.

Note: A $1 increase in oil prices would lift revenues by $17.5 million; a $10 increase in potash would add $53 million; and a 1 cent increase in the value of the Canadian dollar would cut $36 million.

The revenue outlook is also based on reasonable economic growth assumptions. Real GDP growth is projected to slow to 1.0% in 2024 from 1.4% last year. Importantly, nominal growth is expected to improve to 2.1% after likely dipping slightly in 2023. Both of those forecasts are very consistent with our current view for 2024.

Total spending is projected to dip 3.5% this fiscal year, to $20.1 billion. The drop in spending is somewhat misleading as it comes after a significant in-year boost last fiscal year. Total spending in FY23/24 is now on track to come in at $20.9 billion, or almost 12% higher than the original budget plan. Both health and education saw significant boosts through the year.

Meantime, Saskatchewan continues to run with strong capital plan spending, and that will only accelerate in the coming two years. Total capital spending will rise to $4.4 billion in FY24/25 and $5.2 billion by FY25/26, up from $3.6 billion in FY23/24. These levels now top peak spending seen in the 2016-18 period. Transportation, municipal infrastructure and health care are big target areas, along with Crown Corporations such as SaskPower.

Total borrowing requirements will rise noticeably this year to fund the deficit and strong capital spending program. Total borrowing is pegged at a record $4.4 billion, up from $2.7 billion in the prior fiscal year. As such, net debt will rise to 14.0% of GDP, which is still near the very low end of the provincial spectrum, but turning higher again from 13.3% in FY23/24.

Bottom Line: Ongoing spending pressure and the prior-year's revenue slip have left Saskatchewan in deficit. But, the shortfall is modest, the Province sees a quick path back to balance, and most fiscal metrics remain at the very strong end of the provincial pack.