Drought has big impact on Saskatchewan’s mid-year financial forecast

Some of Saskatchewan’s finances have dried up thanks to the drought that hit the province in 2021, helping to keep the province’s books in the red.

In its mid-year financial report released Monday, the Government of Saskatchewan forecast a deficit of $2.71 billion, up $97 million from the budget but down $29 million from the first quarter.

One of the biggest impacts on the province’s financial health was the drought.

“The drought was unforeseen and farmers were hit hard this spring and summer,” Donna Harpauer, the province’s deputy premier and finance minister, said in a media release Monday. “Our government is here to provide support to Saskatchewan people when they need it.

“Absent the drought, we would have seen a significant improvement from budget and a much lower deficit, based on stronger revenue across all major categories.”

According to the mid-year report, the province is facing $1.8 billion for crop insurance claims, bringing the total indemnity forecast to $2.4 billion. There also was $292.5 million in support for livestock producers affected by the drought.

Harpauer said it was the largest crop insurance payout the province has seen.

In past years, when introducing the budget, Harpauer has said her worst fear is a crop failure. This year, that has nearly happened.

Harpauer admitted it has been a challenging year, but she also said there is something exciting about mid-year numbers.

“If you backed out the expense of crop insurance — the $2.4 billion — as well as the livestock producer support, we would almost be balanced. That is how significant that support was for agriculture producers,” said Harpauer.

That’s because the revenue is now forecast to be $2.4 billion over what was expected in the spring budget, to $16.869 billion.

The increase in revenue includes hikes in resource revenue (up nearly $669 million due to higher oil prices and potash prices) and taxation revenue (an increase of $617 million due to higher income and sales tax revenues).

Cannabis also brought in more than expected, leading to a $5.9-million increase to “other taxes” revenue.

“We are seeing indications, in many aspects of our economy, of a return to pre-pandemic strength in Saskatchewan even as the pandemic persists,” Harpauer said in the news release.

Speaking to reporters, Harpauer said she was surprised by the resilience of the province’s economy.

“We are rebounding faster and deeper than we had anticipated,” the minister said.

The province also received increased transfers from the federal government of $542.6 million over budget. The majority of those funds were for drought, pandemic, child care and municipal infrastructure funding.

The government also is spending $101 million over budget due to the COVID-19 pandemic and wildfires that ravaged the province.

Health expenses are expected to increase by $250 million over budget due to the pandemic as well as pressures on the Saskatchewan drug plan.

Total expense is forecast to be up $2.5 billion from the budget, to $19.577 billion.

The mid-year report says the province’s real GDP is forecast to grow by 3.6 per cent, up from 3.4 per cent at budget. In 2020, the real GDP fell by 4.9 per cent.

“Saskatchewan has the highest growth in manufacturing sales and the second-strongest growth in housing starts in the country so far this year,” Harpauer said. “We are seeing many economic indicators trend up.”

Employment in the province has risen by 13,730 jobs so far in 2021 compared to the same time period last year. Saskatchewan’s employment rate of 62.6 per cent so far this year is second-highest among the provinces.

The public debt is expected to be $27.833 billion, up $66 million from budget but down $24 million from the first-quarter forecast. The province’s net debt is forecast to be $16.7 billion as of March 31, 2022, down $871 million from budget predictions.

Markets took a hard dip last week with the announcement of a new COVID-19 variant of concern, but Harpauer said the government doesn’t know much about the variant yet and so doesn’t know what’s going to happen. She said it’s hard to predict.

Preparations for the spring budget are already underway and Harpauer said COVID will likely have to be factored in, explaining the government will likely do what was done this year: Averaging expenses from the previous year and adding several months of that into the next year’s budget.

“In the hopes that we do finally see a levelling of numbers and not need it all, but we probably will factor in some dollars,” said Harpauer.

In building the next budget, Harpauer said the government is still going to be cautious.

“Can we afford at this point grandiose spending? We cannot, but do I foresee any reason to start to reduce? No. I think that we’re seeing the strength in our economy that will support the programs that we have in place and be sustainable going forward,” said Harpauer.

The minister said she’s still expecting to the province’s budget back to balance in five years.

‘Mismanagement’ showing

The NDP’s finance critic, Trent Wotherspoon, said the mid-year financials show more of the impact the Saskatchewan Party’s mismanagement, as he calls it, has had — the human cost, but also now the fiscal cost too.

“If the government had contained COVID, we would be in such a better place here today when it comes to our public finances, when it comes to our economy, when it comes to Saskatchewan people receiving those surgeries and those transplants and those procedures when they needed them,” he said.

Wotherspoon said the accounting of the cost of COVID’s fourth wave is too vague, that it doesn’t break down what the extra $250 million was spent on and that the cost of moving patients out of province isn’t included. Harpauer said the province hadn’t been billed for that yet.

“We don’t see any accounting as well for the kind of investment that’s going to be required to ramp up and get back on track our surgeries and procedures and organ transplants,” said Wotherspoon.

The drought was devastating, according to Wotherspoon, and the consequences are still being felt by producers.

“Livestock producers and grain producers were in an incredibly hard situation this year; they need and deserve support. Programs like crop insurance, that’s what they’re there for, that’s why folks pay into them,” said Wotherspoon.

The finance critic said his party was calling early on for the provincial government to treat the drought like the emergency it was.

Wotherspoon also said there are other programs he and his party had been pushing for the province to fix which could have helped as well, including the business risk management program, lowering the income threshold for the farm and ranch water program, and putting in protections for producers subject to predatory grain contracts.

Wotherspoon said it’s encouraging to see revenue strength but the provincial government is squandering the opportunity.

When asked about how climate change figured into the drought and into future budgets, Harpauer said the droughts she has experienced are cyclical and it’s up to the scientists to say whether the drought had anything to do with climate change.

Wotherspoon, on hearing that, said it’s clear to anyone that Saskatchewan is vulnerable to severe weather from climate change, like droughts and forest fires.

“This isn’t a government that has stepped up to the challenge of climate change,” said Wotherspoon.