By Dr. HAIZHEN MOU (PhD), Professor, Johnson Shoyama Graduate School of Public Policy, University of Saskatchewan. She studies government budget management, fiscal federalism, and health care financing and expenditure.
@HaizhenMou |  haizhen.mou@usask.ca 

The fiscal plans of the Saskatchewan Party and the New Democratic Party (NDP) could not be more different. The Saskatchewan Party followed its conventional path and offered tax cuts and restrained spending. The NDP proposed large spending programs and envisioned major changes to various current policies. The election outcome offered the Saskatchewan Party another four years of power.

For the Saskatchewan people, this election outcome means a predictable fiscal course. On the other hand, the election outcome also means a missed opportunity for change.

Since the 2008 financial crisis, expenditure growth has slightly outpaced revenue growth most of the time in Saskatchewan. As a result, Saskatchewan’s taxation and expenditure have not been structurally balanced.^[1] When the pandemic hit early this year, the estimated budget balance for fiscal year 2019-20 was a deficit at about 0.4 per cent of the GDP. This means there was no fiscal slack that would permit the province to absorb the additional cost due to the COVID-19 pandemic. The province had three options: raise taxes, cut spending, or borrow to close the gap.

Riding on its popularity, garnered over the past 13 years, the Saskatchewan Party led by Premier Scott Moe chose not to change fiscal course. The main promises of the Saskatchewan Party in its election platform included a reduction in the small business tax, a home renovation tax credit, and a 10 per cent rebate on power bills. The party plans to build hospitals, schools, and highways, and offer some financial assistance to seniors, students, and families. This fiscal plan is premised on providing short-term relief and waiting for the economy to heal itself. Under this plan, the government will run four consecutive years of deficits and will then return to a balanced budget in 2024-25.

The familiar approach of the Saskatchewan Party to fiscal policy resonated well with voters, who welcomed the financial relief but did not want the government to break the bank. This reassuring approach was premised on the assumption that nothing in the economy had fundamentally changed, and the pandemic’s impact was limited to reduced economic activity.

The NDP offered a different interpretation, one which treated the pandemic as an opportunity to rethink some fundamentals. Rather than reining in labour costs, the NDP’s plan included hiring hundreds of teachers, doctors, and nurses. The plan also proposed to revive public services in rural communities that the Saskatchewan Party had cancelled. Rather than fighting the carbon tax, the NDP premised its relationship with the federal government on the development of a national PharmaCare program. The NDP’s environmental plan included a goal of 50 per cent renewable energy by the year 2030 and installation of supercharging stations for electronic vehicles along major routes. All of these programs cost money. The only tax increase that the NDP proposed was a one per cent wealth tax on people with a net worth higher than $15M. In the end, the NDP promised to balance the budget “as quickly as possible.”

The fiscal plan laid out by the NDP was consistent with what many other leaders of the world were contemplating—increasing government spending, investing in people, reducing income inequality, and “greening” the economy. Unfortunately for those on the political left, it seemed the majority in Saskatchewan were not ready for dramatic changes. The programs proposed by the NDP would cost millions of dollars with uncertain payoffs. More importantly, the NDP’s spending proposals made people nervous about the future of Saskatchewan. At what was a particularly stressful moment, voters evidently preferred predictability and stability over innovation and policy adventures.  

So, what is ahead for the economy and the fiscal house of Saskatchewan after the victory of the Saskatchewan Party? We can safely expect tax cuts and restrained government expenditures. Balancing the budget by 2024-25? It is entirely possible, if the pandemic is controlled in time and the global economic environment is favourable.

With the generous spending from the federal government, the provincial government’s fiscal situation is relatively healthy. So far it used only $40M of the $200M contingency fund that it set aside to fight the COVID-19 pandemic. Its net debt-to-GDP ratio in 2021-22, predicted to be around 20 per cent, is among one of the lowest of the ten provinces. Saskatchewan is at an enviable position compared with its neighbour Alberta, which is facing a depressed and uncertain economy. In contrast to Alberta, which is still reluctant to introduce a Provincial Sales Tax (PST), the access to PST revenue and the PST rate increase in 2017 offered Saskatchewan an important revenue buffer.

More importantly, the foundation of the economy has been so far rather unscathed, and market trends favour the province. The economy of Saskatchewan is positioned to rebound quickly, as soon as the world economy recovers. With a dominant share of uranium and potash in the world, and a large stock of arable land, the future of Saskatchewan is bright. The world’s demand for food and minerals will only increase. An RBC report projected that the revenue of the province will grow at about 5 per cent per year over the next three years, while total expenses will grow at a much slower pace (-0.4 per cent in 2021-22 and 1.5 per cent in 2022-24).^[2] This leaves Saskatchewan on a plausible path to balancing the budget by 2024-25.

However, the recent spike in coronavirus cases and possible new lockdown measures throw these projections into doubt. If the economic recovery is scaled back, the Saskatchewan Party will have to revisit its assumptions and adjust its taxation and spending programs accordingly. Of course, the government can always push the date of balancing the budget beyond 2024-25. The only certain thing is that the NDP missed a historical opportunity rendered by the pandemic. If the unsettling circumstances of the pandemic did not shake Saskatchewan’s commitment to a conservative fiscal approach, it will be even harder for the NDP to challenge and alter the current fiscal course in the coming years.

References

[1] James Wattam and Haizhen Mou. 2020. “Canadian Provincial Fiscal Cyclicality.” Working Paper.

[2] Royal Bank of Canada (RBC). Oct. 14, 2020. “Canadian Federal and Provincial Fiscal Tables”. http://www.rbc.com/economics/economic-reports/pdf/canadian-fiscal/prov_fiscal.pdf

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