Province's rosy growth forecast based on hope
The Saskatchewan government's 2024 budget does what you would expect an election year budget to do. It paints a picture of a robust, growing provincial economy capable of making what the government has touted as “record funding increases” to “schools, health care and municipalities.
While much of this spending is catch up after years of underfunding, there is no doubt that the government is attempting to diminish its critics in the public sector who have raised the alarm on funding shortfalls for years.
And while this year's budget records another deficit of $273 million, the Saskatchewan Party government believes that it will be back in surplus for 2025-2026, for what they no doubt hope will be the first year in another term of government.
But when we scratch beneath the surface of the government's rosy economic outlook, we find a much more uncertain and potentially grimmer economic reality. For all the talk of growth, the government's own budget predicts a rather anemic growth rate in real GDP of only one per cent in 2024.
It also predicts a higher unemployment rate for the province, rising from 4.8 per cent in 2023 to 5.5 per cent in 2024.
As for revenues, the government's projections also rest on a kind of “fingers-crossed” hope that resource and commodity prices remain at least relatively stable over the next few years.
Take oil prices for example. While oil prices dropped almost $20 per barrel from 2022 to 2023, the government is hoping that the current oil price remains stable for at least the next couple of years.
Similarly for potash, which saw a significant drop from 2023, the budget bets that current prices remain stable for the foreseeable future. So there doesn't appear to be the chance of any windfall resource revenues riding to our rescue anytime soon.
And with a razor-thin surplus of only $18 million predicted for 2024-2025, it would only take a small dip in either oil or potash prices to wipe out what is already a very slim surplus. Yet it is the budget's agricultural predictions that appear to be the most unreliable.
As the government observes, “in 2023, Saskatchewan's total crop production suffered a setback compared to 2022 levels due to drought conditions in some parts of the province.”
The budget is now forecasting a return to normal crop production.
However, it warns that “if there are persistent drought conditions in some parts of the province that lead to lower crop or livestock production, this could weaken the economic outlook.”
Saskatchewan's own Water Security Agency has predicted that “there is a higher risk of agricultural and hydrological drought this year,” while Agriculture Canada predicts that “below normal run-off will result in minimal recovery for dry soils and surface water supplies that have been reduced from previous years of drought.”
The government's expectation that crop production will return to historic norms this year seems unrealistic given the current drought conditions on the ground.
As we saw with the 2023 budget, another equivalent drought and crop insurance payout could very easily blow a huge hole in the government's budget predictions. Yet the government has committed no new money in the budget to address the devastating effects of climate change in the province.
All of this leads us to conclude that the government's predictions of returning to surplus next year all rest on very shaky foundations and could hint at austerity budgets in the future.
Should any of these assumptions prove not to meet the government's expectations, surplus or even balance cannot be guaranteed without either equivalent tax increases or spending cuts. In this respect, the government's election budget may just be the spoonful of sugar before the bitter medicine comes.
We will see if it is sweet enough to convince the public to give this government the chance to administer that medicine if their budget predictions fail to materialize.