I snapped the above pic while walking to the Legislature on Tuesday to pick up an embargoed copy of the 2015-16 Saskatchewan budget. After giving the backgrounder documents a read, it occurred to me that it was an appropriate image to describe the province’s current economic situation.
Due to a precipitous drop in oil (from $115 a barrel in June to well south of $55 a barrel since November, resulting in a $660 million hit to government revenues), and sluggish prices in the resource and commodity sector in general, Saskatchewan’s economy is on “thinner ice” than it’s been for a number of years.
Would Finance Minister Ken Krawetz and his government manage to navigate the course safely? Or would the rot be too great, causing the province to break through the ice and plunge into the frigid waters of economic oblivion?
Okay, maybe that’s a little melodramatic. But with the Harper Conservatives having postponed the federal budget until at least April, Alberta facing a projected $6 billion shortfall in a $45 billion budget, and the Saskatchewan government having talked tough in the pre-budget period about freezing non-essential spending and hiring and zero percent increases for its funding partners, plenty of people were nervous heading into budget day.
Keeping Saskatchewan Strong is the tag the government opted for as a budget theme. And if its numbers are to be believed, it has managed, like the Canada geese above, to stave off disaster. Of course, with the amount of volatility in the economy these days, that’s a big “if”.
Among its key economic assumptions for 2015 is oil at $57 a barrel. It currently sits at $43.46, and most analysis I’ve read suggests a price rebound might be a year or more away. Natural gas is forecast at $3.35 a gigajoule (it currently sits at $2.59/GJ), and potash is forecast to be $295.60 a tonne (it’s currently at $305/tonne).
Despite those shaky numbers, the government is forecasting a 2.1 per cent boost in GDP. Spending, meanwhile, will increase 1.2 per cent to $14.17 billion with new investment in three main areas: health, education and social services. Revenue is forecast at $14.28 billion, which would leave a surplus of $107 million, although with SaskPower, SaskEnergy and SaskTel all undertaking major capital renewal projects, public debt is forecast to jump from $11.7 billion to $13.3 billion. That figure also includes $700 million the government is borrowing to pay for infrastructure.
A key plank in the government’s “Keeping Saskatchewan Strong” platform is its Saskatchewan Builds Capital Plan, Over four years, it’s projected to provide $5.8 billion for capital projects tied to highways, schools, hospitals and municipal infrastructure.
Of special interest to Reginans is $211 million for the next phase of the south-east bypass, along with $19.3 million for further development on replacement schools for Connaught and Sacred Heart. Schools in St. Brieux and Moose Jaw also get a share of that money, so it would seem those projects will remain at the planning and design phase with no construction in 2015-16. There’s also a $50 million allocation for the stadium project.
The Health budget will hit $5.5 billion in 2015-16. That includes an extra $10 million to address issues related to seniors’ care, which has been a political liability for the government in recent years. The Social Services budget is increasing 3.2 per cent to $1.2 billion, with additional funds directed at programming for people with disabilities, child and family services and seniors. Cuts are being made, though, in areas like the seniors’ drug plan and active families benefit through the introduction of a means test so seniors with income greater than $65,000 and families with income above $60,000 no longer qualify.
Contrary to earlier warnings by Premier Brad Wall, the allocation of one per cent of the PST for municipal revenue-sharing wasn’t trimmed, so municipalities will receive $265.3 million in 2015-16, an $8.3 million jump from last year.
One interesting development is an interim change in the potash royalty regime. As of Jan. 1, 2015, the government is reducing the ability of potash corporations to write off capital expenses incurred in expanding production. Under a scheme devised by the NDP in the early ‘00s, potash companies are permitted to write off 120 per cent of their capital costs for new development. They will still be able to write this money off, just not as quickly as they once could. That’s expected to put an extra $150 million in government coffers this year.
As well, the government is committed to doing a potash royalty review. This is a wise move, I think. The NDP’s royalty regime achieved its intended goal of spurring production. But with larger volumes of potash reaching market, prices have inevitably dropped. Current royalties are tied more to price than production. When potash was $800 a tonne in 2007-08, the province raked in nearly $2 billion. But with prices in the $300 a tonne range, the province gets little more than a $10 to $12 a tonne base payment, regardless of how much potash Saskatchewan producers sell at a profit on the global market.
The government intends to consult with stakeholders to seek opportunities to simplify the taxation and royalty regime, budget documents state. “Government strongly believes that any further changes must balance the excellent investment and operational environment for the industry, which is so important to the provincial economy, with the need for a fair return for the owners of the resource, the people of Saskatchewan.”
The government is also increasing a well levy charged to the oil and gas industry from $16.7 million to $20 million. The money will be used, says the government, to “launch enhanced regulatory, environmental and safety compliance systems.”
Again, there’s desperate need for action in this area as fully one-fifth of our annual 75 million tonnes of greenhouse gas emissions are from fugitive gases (methane, primarily) that are either vented or flared from oil wells. Although whether the government will take the steps necessary to force the industry to capture these gases remains to be seen.