Revenue Volatility, Expenditure Caution, and Resource Uncertainty: Our Analysis of the Saskatchewan Budget 2024

Canadian Economics

By: CBoC Economics Team

  • The province posted a higher-than-expected deficit of $482.5 million in the fiscal year just ending and is planning for a deficit of $273.2 million in fiscal year 2024–25 due to weakened resource revenues and growing demand for government services. The medium-term outlook is brighter, with surpluses expected over the subsequent three years.
  • Economic assumptions behind the budget numbers are prudent relative to our own forecast. Real GDP growth is closely aligned in 2024, off by just 0.1 per cent, but the province is more prudent over the outer years.
  • Budgetary revenue growth is kept in check because there is little in the way of tax increases and non-renewable resource are expected to drop. Revenues in fiscal year 2024–25 are expected to decrease by $521.3 million from the latest estimates for fiscal year 2023–24.
  • Corporate income tax revenue is expected to decline by 44.0 per cent in fiscal year 2024–25 when compared to the latest 2023–24 estimates. This is reflective of an anticipated resource market correction following a period of robust economic growth and elevated commodity prices, including record-high potash prices during the 2022–23 taxation year.
  • Oil and gas revenues are budgeted to be 12.3 per cent higher than previous year estimates thanks to a tighter oil price differential and the scheduled operational commencement of the Trans Mountain Pipeline Expansion in 2024. Potash revenues, which are susceptible to lower potash prices and higher operating expenses, are budgeted to be $66.1 million higher than the third-quarter forecast estimates for fiscal year 2023–24.
  • Provincial spending is set to decrease by $730.7 million this fiscal year when compared to the latest forecast for fiscal year 2023–24, mostly because of an estimated decrease in agriculture payouts. This volatility highlights the sizable risk to the fiscal outlook for the upcoming year and beyond, given the unpredictable nature of climate events and their impact on agriculture.
  • Key areas of spending, meanwhile, are facing pressures from high inflation and a growing population. Health-care spending is estimated to increase by $96 million and education spending is estimated to increase by $124.9 million.
  • Like many provinces across the country, Saskatchewan is bolstering its capital spending plans. Capital expenditures are expected to increase by $752 million next fiscal year, and increase again in fiscal year 2025–26, amounting to total investments of $17.9 billion over the next four years.
  • Saskatchewan’s net-debt to GDP ratio remains favorable compared to other provinces, with a modest rise to 13.3 per cent in 2024, reaching a peak of 14.6 per cent in 2027 before beginning to decline.

Key Insights

Revenues remain heavily dependent on the province’s non-renewable resources. This budget places an emphasis on planning around non-resource revenues, which are expected to receive a boost across segments, mainly because of a strong economy and healthy population growth. However, the province’s plan does provide some upside for non-resource revenue. The budget is built around modest assumptions for potash prices through 2028. Thus, total non-renewable resource revenue is expected to be almost half of levels seen two years ago, and $700 million less than what was planned for last year. As a result, while non-renewable resource revenue will naturally provide volatility to the budgeting process, the current assumptions are prudent, with room for added upside.

The province’s spending plan shows caution in the face of uncertain revenues. Despite notable increases in health-care and education, and a bolstering of the capital budget, there is little in the way of new programs announced. The net result is a budget that remains restrained in the face of uncertain revenues, but that also keeps a surplus within reach. There is some concern that spending could be higher than anticipated. The province is reducing its estimated agriculture expenses by over $1 billion compared to its forecasted results for last fiscal year, without adding contingencies to its fiscal outlook. This leaves the provinces’ finances vulnerable to any adverse events such as drought.

Overall, despite the plan for two consecutive years of deficit, the province’s finances remain an envy of the rest of the country. The reality is that the province’s balance is feeling pressures from outside factors, notably a weaker resource market and last year’s drought, and while these two issues may become a norm, the budget takes a broadly responsible approach to planning for them. There is little projected increase in non-renewable resource revenues, which sits comfortably below the province’s target of 15 per cent of expenses, meaning growth in expenses are largely being funded by other revenue sources. While it’s a concern that the province hasn’t set aside more money for unforeseen circumstances in its agricultural industry, the budget is otherwise fiscally responsible with a plan to get back to surplus quickly. In all, this budget sets the province in the right direction to meet the needs of a growing population, with only a modest, and short-term, increase to its already enviable net-debt position.

2024 Budget Analysis