‘New Saskatchewan’ needs fiscal caution

Finance Minister Ken Krawetz’s mid-year financial report last week reminds us that the chief financial officer for Saskatchewan believes his government’s spin. Apparently sound fiscal management and balanced budgets are a fundamental principle of the “Growth plan” released by Premier Brad Wall and a key part of the “Saskatchewan Advantage.” We are told that Saskatchewan’s economy is performing well and in the “New Saskatchewan” all is skittles and beer as our province “continues to benefit from one of the strongest provincial economies in one of the strongest nations and remains on track.”

Buried in all this apparent wave of good news are two compelling facts. The province of Saskatchewan’s debt is up $1 billion this year alone and resource revenues are sinking and sinking fast. Oil and potash revenues are down $405 million in the first half of the year and there is another six months to go before this budget year is over.

But Krawetz tells us not to worry because, “In the new Saskatchewan, our economy is more diverse, so even when one revenue source is down, others are up to maintain the balance. As a result, Saskatchewan has the only balanced provincial budget in Canada.”

On the very day that Krawetz was delivering all this good news, the Organization for Economic Co-operation and Development (OECD) issued a report warning that the global economy will slow growth for Canada. According to the OECD there is further escalation of the crisis in the 17-country eurozone and the U.S. fiscal cliff is fast approaching. China and to a lesser extent India have economies that have slowed.

These countries buy potash. Krawetz and his government seem bent on ignoring these warnings and instead modestly adjust assumptions on potash, which he now tells us will average $443 US per KCI tonne, down from $464 US, and sales will drop to 9.6 million K2O tonnes from 10.2 million K2O tonnes, but we can still expect to see close to $500 million in potash revenue.

While the province of Saskatchewan debt is increasing, municipalities across the province are also adding debt. In December 2007, Saskatoon had $42 million in pre-existing debt. The government of Saskatchewan has given our city approval to borrow up to $414 million and the city expects to have $310 million in debt by 2013 with the addition of the new police station and the Remai Art Gallery of Saskatchewan. The City of Regina can now borrow up to $350 million and that approval was given before the Sask. Party government announced the new stadium, which Regina taxpayers will have to borrow to pay for. Municipalities across our province have received similar approval, which adds debt to their annual financial statements.

Not only have municipalities been given the green light by the Sask. Party government to dramatically increase debt, but so too has the University of Saskatchewan. Instead of the government cash financing this year’s $95-million instalment on the new Academic Health Sciences building, the university was instructed to borrow the money.

The U of S now has more than $250 million of debt on its books. To top it off, the university has an operating deficit this year and it is questionable whether the entire Academic Health Sciences building will be able to open unless the province comes through with operating funds.

Never mind that our students pay some of the highest tuition fees in Canada.

And now that the government no longer allows school boards to collect school taxes, they have been told to borrow money, at higher interest rates, to build the schools that ministers like to announce.

Even though the OECD report, the burgeoning federal government deficit, China’s economic slowdown and America’s political deadlock all advise us that now is the time for caution, the Wall government is trapped. Its political image is completely dependent upon constant economic growth or the appearance of it.

It is so cemented in its own message of a New Saskatchewan, that any deviation from it is unlikely.

From its first day in office, the Sask. Party oversold its product and cannot now risk voter wrath if the public is suddenly (and unexpectedly) informed of the government’s deteriorating fiscal climate.

It is time our government started planning for tougher times, if only for the simple reason to err on the side of caution.

The Wall government and Krawetz seem equipped to ride the wave, but are ill-prepared to manage in challenging times. When the government starts believing its own hype, we’re all in trouble.