Mid-year financial report forecasts lower deficit

Saskatchewan’s financial picture is brighter than expected at the mid-year point.

The 2020-21 mid-year report, which was released Friday, predicts the province’s deficit will be more than $380 million lower than forecast in the budget.

Finance Minister Donna Harpauer said that, with all the unknowns around the pandemic, it has been difficult to put together these numbers.

“I’ll say what I think I’ve said in the past: I long for the days where I’m just worried about crop insurance claims and potential floods. There is no model that we can compare this to. It’s just a very unknown time,” said Harpauer.

The report forecasts a deficit of $2.0 billion, an improvement of $381.5 million from the budget and $86 million from the first quarter.

The province now is expecting revenue to be $14.2 billion, up $503.5 million from the budget and an increase of $105 million from the first quarter.

Higher federal transfers (nearly $443 million), higher Government Business Enterprise net income (including a $97.3-million increase from the Saskatchewan Liquor and Gaming Authority due to a better-than-expected recovery from COVID-19) and higher non-renewable resource revenue (in part because oil prices increased since the budget was delivered) played roles in the predicted increase in revenue.

Harpauer said she’s pleased to see that economic indicators in Saskatchewan are stronger than what the government had anticipated in the budget, but she still has concerns going forward.

“We’re reliant on two things largely. (One is) consumer confidence and as COVID numbers rise, the consumer confidence is going to fall. The other thing that we’re very reliant on because we’re a trade-dependent province is what is happening in other jurisdictions across the country but as well as globally,” said Harpauer.

“I will always have a nervousness for those two factors because they will affect a budget in a big way.”

There was a $41.2-million decrease in tax revenue as a result of the province’s decision to reduce the small business tax rate to help companies recover from the effects of COVID-19.

The province’s expenses now are expected to be $16.2 billion, an increase of $122.0 million from the budget and $19 million from the first quarter.

The expenses increase includes higher spending in the health, education, municipal and tourism sectors due to the pandemic. That increase was partly offset by lower-than-expected pension and crop insurance claims expenses.

The government has kept in place a $160-million expense contingency and also added a $100-million “revenue forecast risk allowance,” both to help deal with unforeseen pandemic expenses.

“At $260 million, I think it’s a substantive cushion that we’ve built in for the remaining half of the year … but it is uncertain times,” said Harpauer.

The province’s public debt ($23.8 billion, down $541 million from the budget) and net debt are both lower than was forecast in the budget.

Saskatchewan’s net debt-to-GDP ratio as of March 31 is expected to be 19.6 per cent.

“Saskatchewan’s economy has performed better than originally anticipated in the June 2020 budget,” Harpauer said in a news release. “Real GDP is forecast to decline 5.0 per cent, compared to a decline of 6.3 per cent forecast at budget.

“Saskatchewan’s unemployment rate was the lowest in Canada in October and total employment, on an unadjusted basis, is nearing pre-pandemic levels. As a result, our planned path to balance in 2024-25 is unchanged.”

According to the government, the province’s real GDP is expected to increase by 3.4 per cent in 2021. However, Saskatchewan’s growth forecast for 2021 is down from the first-quarter projection because of lower expectations for oil production and investment in the province.

NDP responds to report

NDP Finance Critic Trent Wotherspoon and Aleana Young, the party’s critic for the economy and jobs, weighed in on the report.

The NDP said the government failure to use its contingency funds — increased to $260 million in the report — as well as all of the federal government’s $440 million to fight COVID was a serious issue while the second wave hits.

Wotherspoon gave more details as to why his party believes it’s a bad idea to conserve the contingency fund rather than spending it on services right now.

“Ideally, those dollars — we believe — shouldn’t be there to fund field hospitals with overwhelmed health services,” he said. “And having Saskatchewan people falling through the cracks, lives lost and protracted economic impacts, those dollars should have been deployed to keep this virus in check and ensure safety for Saskatchewan people.

“We would argue that the risk and the cost of inaction is far greater than stepping up with some of the addition measures that are needed.”

Young also wondered why the government is hanging on to the contingency money from the federal government.

“I think just leaving that uncertainty out there, to me, indicates either (that) there is no plan and they’re not prepared to be proactive on this, or that that money’s being left in reserve for reasons I can’t begin to fathom,” she said.