After a spring prediction of a surplus in the provincial budget, the announcement from the Ministry of Finance that Saskatchewan is now anticipating a $292 million deficit is certainly not as optimistic an outlook. Much has changed since the former Finance Minister Ken Krawetz predicted a $107 million surplus in April. Now, Finance Minister Kevin Doherty is certain that the government can recover before the end of this fiscal year.
Doherty said the government will use a strategy of spending restraint to balance the budget, rather than tax increases or borrowing.
鈥淲e鈥檙e not going to go down the path of increasing taxes, and we don鈥檛 anticipate borrowing any more money,鈥� said Doherty. 鈥淲e鈥檙e going to spend three fourths of the fiscal year managing our expenditure side.鈥�
In a call with the Mercury, Doherty noted that the Energy City鈥檚 infrastructure projects, including the Boundary Dam Carbon Capture Project, are among many in the province that will continue to be supported by the government.
鈥淲e want to keep the economy strong and deal with the growing population, introducing new technologies like carbon capture to deal with greenhouse gas emissions,鈥� said Doherty.
While the projected deficit for Saskatchewan only makes up just over two per cent of the province鈥檚 $14 billion budget, Doherty noted it requires government action to remediate. The two main stressors on the economy that brought about the deficit were the recent summer forest fires and the price of oil.
The forest fires that engulfed huge portions of the boreal region in northern Saskatchewan resulted in the largest evacuation in the history of the province. The costs of the evacuation and housing of evacuees entailed expenses that went over and above what is normally budgeted in the run of a year for forest fire fighting, by $100 million.
鈥淐ouple that with our oil revenues, which have bounced around and are extremely volatile. We projected oil to come in around $57 a barrel in our March budget, and we鈥檙e finding oil will average about $49.50 a barrel over the course of the fiscal year,鈥� said Doherty. 鈥淭hat鈥檚 affected our revenues to the tune of about $238 million.鈥�
Expenditure management involves a lot of streamlining and working with efficiencies in the government, dealing with how much money Crown corporations spend, how much money is spent by the ministries, and the cutting of expenditures when and where it鈥檚 possible and practical to do so.
鈥淲e鈥檒l be asking ourselves a lot of questions like 鈥楧o we absolutely need to fill that position today or can we wait, or do we need to fill that position at all?鈥� said Doherty.
In reviewing expenses, the government will consider the areas in which the majority of government spending goes: healthcare and education. Travel and discretionary expenditures will also be scrutinized in the process in an effort to trim fiscal excess.
Comparatively, Saskatchewan is in a better financial position than its neighbors, Manitoba and Alberta, with their projected deficits of $422 million and $5.9 billion, respectively.
The deficit-pushing low oil prices have had a significant impact on business in the Energy City. Jim Wilson, owner and president of Wil-Tech Industries, said he is aware many companies in the energy industry have seen revenues drop by 40 to 50 per cent, and that he鈥檚 not surprised that a deficit has arisen in a province in which energy is such an important industry.
鈥淚t鈥檚 something that goes hand-in-hand with businesses. I don鈥檛 think it鈥檚 avoidable when there鈥檚 a downturn,鈥� said Wilson. 鈥淚t was significant enough so that there鈥檚 no place to run and hide when that much of the business goes away. The government鈥檚 diligently trying to deal with this, but it鈥檚 a large amount of money they鈥檙e missing.鈥�
Warren Waldegger, president and CEO of Fire Sky Energy described energy industry companies as being in 鈥減rotective mode.鈥�
鈥淚n terms of cash flow, if oil is down, then royalty revenue would be down. Royalties are tied to the price of oil, so the drop in the price per barrel of oil definitely influences us,鈥� said Waldegger. 鈥淭here鈥檚 been a significant reduction in our cash flow, and there鈥檚 not enough activity or cash to invest back into development, or drilling and exploration.鈥�
Waldegger notes that a recovery for the price of oil is warranted and coming, but that it鈥檚 difficult to predict when that鈥檚 going to happen. Because of this, he suggests the best strategy for businesses is similar to the one the government plans to use in the meantime: control spending.
鈥淵ou have to budget with what you鈥檝e got, and deal with what鈥檚 in front of you,鈥� said Waldegger. 鈥淩ight now, everyone is pretty cautious, protecting their balance sheets and trying to reduce spending.鈥�
