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'You knew a hit was coming': Sask. economist reacts to province's $250M deficit following forecasted $1B surplus

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A Saskatchewan economics professor says the province’s recent news of a deficit was not unexpected. However, the surprise was how much the forecast has dropped since the province's latest budget.

The Government of Saskatchewan provided its mid-year fiscal update on Nov. 27 – outlining a starkly different picture than it did during its latest budget.

In March, the province forecasted a surplus totaling $1.3 billion. That figure later shrunk by over $500 million in August – before falling further to a deficit of $250.5 million.

According to Jason Childs, an associate professor of economics at the University of Regina, the surprise doesn’t lie with the fact that there's now a deficit – it lies with the more than $1 billion decline since March.

“I wasn't expecting it to be this bad,” Childs told CTV News. “I didn't think we were going to pay out nearly as much as we did in crop insurance. The forest fires and the evacuation obviously – that takes a big bite and commodity prices being much, much softer than expected.”

“Watching that unfold in real time. You knew a hit was coming,” he added.

Agriculture and Agri-Food Canada announced on Nov. 9 that approximately 30 per cent of crop insurance claims in Saskatchewan were paid out. Early forecasts indicated that total payments through the program could reach $1.85 billion.

On top of that immense cost, 2023 saw a recording breaking fire season with 1.9 million hectares being scorched – mostly in the province’s north.

While speaking with reporters during the update, Finance Minister Donna Harpauer also blamed the actions of Russia and Belarus for undermining Saskatchewan’s potash exports, causing a rapid decline in revenue for the province.

Childs says that all of the factors listed by the province show that certain revenues can’t be relied on for stable funding.

“It really demonstrates the volatility of the Saskatchewan economy and the government revenue that flows from that as well as the expenditures that flow from that,” he explained.

Since the surplus announcement, the province faced repeated calls to use the funds for affordability relief and to fund health care amid staffing shortages.

Child says the latest decline offers a cautionary tale on increasing spending based on forecasted surpluses.

“We have a tendency to want to think ‘Oh, the good times are gonna last forever,’ and they can last quite a while but they never last forever,” he said.

“If we're going to have a program, there needs to be a stable source of funding attached to that … things like consumer based tax, a provincial sales tax, for example, will get you there. Income taxes are volatile, but less volatile and commodity prices and commodity royalties. So if we want programming, above and beyond what we've already got, we're going to need taxation above and beyond what we've already got.”

For those expecting help with affordability, it’s now more unlikely that relief is coming.

“It's really hard for government to do that kind of thing when it itself is dipping into savings or looking to issue new debt. We do have to be really, really cautious because consumer debt in Saskatchewan, in Canada as a whole, is remarkably high,” Childs explained.

“When you look at the total debt situation, there's some precarity in the system, and it doesn't take a whole lot to push a large portion of the population into some real trouble.”

The key thing to remember, according to Childs, is that the trend has happened before – and will happen again.

“This is not an unexpected thing. This is not something that's out of the ordinary. We've seen these kind of fluctuations throughout most of Saskatchewan’s history as a province. We do see these boom and bust cycles, particularly around commodity prices,” Childs said.

As for what to expect from the province now that funds are tighter – there are a couple of options according to Childs.

“If we're going to maintain this idea of balanced budgeting, or somewhere in the neighborhood of the balanced budget, we're going to have to see either a reduction in the growth of spending or an increase in the rate of taxation,” he said.

“But we aren't going to see a government as flush with money – willing to just throw money at problems in the way that we might have seen if things had sustained themselves with surpluses in the billion dollar range.”

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