Sask. likely taking cautious approach with budget surplus, economics professor says

Saskatchewan is likely taking a cautious approach when it comes to the surplus announced in the 2023-24 provincial budget, according to an associate professor of economics at the University of Regina.

When Finance Minister Donna Harpauer revealed the budget on Wednesday, one of the province’s highlights was a projected surplus of $1 billion.

Jason Childs said with spending lower than last year and not much being done to immediately address ongoing affordability issues in Saskatchewan, it’s likely the government realizes much of that surplus came from a place of volatility.

“My hope is that it’s out of an abundance of caution and understanding that these revenues are highly volatile,” Childs said.

Much of the province’s current windfall is coming from non-renewable resource revenues.

In 2023-24, the province projects that potash will bring in about $1.3 billion and oil and gas around $963 million, two commodities that are highly influenced by global events, such as the conflict in Ukraine.

“Oil in particular is going to be subject to geopolitical events, so if somehow we saw a resolution to the conflict in Ukraine and Russia is allowed to re-enter the global oil export market, that can drastically change the price of oil,” Childs said.

He also said a very similar scenario could play out with potash.

“So when revenues are this unstable, building them [too much] into program spending is a really good way to borrow trouble that you don’t need.”

Childs said simply put, current and projected non-renewable resource revenue is something that could be flipped as quickly as a light switch.

“We saw something like that happen in 2014, with Saudi Arabia deciding they were going to discipline OPEC members and really try and assert their control over global oil markets by radically increasing production,” Childs said.

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According to Childs, in every scenario it’s always a bad idea to build resource revenue into large amounts of program spending.

“I can’t stress that enough,” he said. “I would much rather see Saskatchewan do what Norway has done which is bank it all. Now they’re in an amazing situation in which they have this incredible sovereign wealth fund that completely insulates them from any of these fluctuations effectively.”

Childs said Saskatchewan is not in that position yet and has to spend some non-renewable resource revenue on program spending

However, he agreed the province was forced to be cautious with its spending this fiscal year.

“Yeah, and it’s really encouraging to hear the government making statements that say this revenue is likely to be transitory so we can’t build it all into program spending. That is being fiscally responsible, which is really encouraging to hear,” he said.

Childs said he was also really pleased to see the debt go down.

“So the budget for 2023 had the debt at $32.6 billion and we’re now at $30.8, that’s really encouraging. We’re seeing that debt number going in a really positive direction.”

Childs also said in the current economic environment, it is also a positive sign to see taxpayer-supported debt drop by nearly $3 billion.

“That’s a really good investment for the future because all that debt is going to roll over eventually at that higher interest rate, so our debt service costs are going to go way up if we don’t pay it down now,” he said.