Finance minister warns oil prices threaten budget
Saskatchewan’s finance minister says the province is “on track” to get back to balance in 2019 but, despite oil revenue projections increasing, cautioned naturalresource prices could threaten that plan.
The deficit for the 2018-19 fiscal year is projected to be $348.3 million, or $17 million less than what was predicted when the budget was released in April, according to the province’s mid-year fiscal update released Thursday.
Finance Minister Donna Harpauer told reporters Saskatchewan’s economic outlook has “improved somewhat” since April’s budget release, but made much of a growing spread between Canadian and U.S. oil prices, saying “absolutely it’s a concern.”
A widening differential between light and heavy crude (now forecasted to average out at 31.7 per cent over the fiscal year) is a cause of major concern for the province, in part because provincial coffers are reduced with every percentage-point increase in the annual differential.
Despite the fact the majority of Saskatchewan-produced oil is not subject to the differential, the cost of it is still expected to be $96 million by the end of the fiscal year.
But Saskatchewan is still coming out ahead because oil prices remain high (resulting in an extra $105 million) and a weaker Canadian dollar works in the government’s favour, adding an extra $11 million to provincial coffers.
As a result, oil and natural gas revenue projections have gone up $18.1 million from where they were seven months ago.
“We’re now in kind of uncharted territory and we’re seeing a differential that we have not seen for a longer period of time,” Harpauer said. “That’s concerning as we build our next budget.”
From now until the end of the fiscal year, the province is forecasting the differential to hover just below 40 per cent. If it climbs higher than that, or oil prices drop, it will have a negative impact on the province’s ability to meet its commitment of getting back to balance in the 20192020 budget.
Asked if she believes doing so can be accomplished, Harpauer said, “We’re setting that goal and that’s what we’re going to aim for.”
Considering the 2019-20 budget surplus is expected to be a modest $6 million, the margins are slim.
Costs associated with looming public-sector contracts will also continue to be a concern for the province, although it is unclear how much so.
There are about 51,200 publicsector workers representing more than 30 employer groups without a contract, and each one-per-cent increase in wages across the public sector represents roughly an additional $75 million in cost for the provincial government.
Because some of the settlements from those contract negotiations will be retroactive, Harpauer said it would be “extremely difficult” to manage collective bargaining in the current budget.
Overall, revenue is expected to hit $14.38 billion, up from the $14.2 billion projected in April. The sales tax alone, raised to six per cent last year, will bring in $2.155 billion.
The finance ministry is also projecting $121.1 million more in spending, mostly because of increased pension expenses, with the mid-year update forecasting $14.73 billion in total expenses. Increased pressures to social services, health care and courtrooms, as well as costs from forest-fire fighting also contributed to the increased spending.
NDP Leader Ryan Meili said the spending hike is “striking” and, “evidence of exactly what we’ve been saying, this austerity approach will end up costing more in health, social services and justice, and that is coming home to roost.”