Saskatchewan finance minister defends rising deficit on Evan Bray Show

Higher oil prices mean Saskatchewan is receiving an extra $331 million in revenue, but despite the boost, the provincial deficit has grown from $819 million to $825 million since the provincial budget was tabled in March.

Finance minister Jim Reiter defended the rising deficit during an appearance on The Evan Bray Show on Monday morning.

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Listen to the full interview, or read the transcript below:

The following questions and answers have been edited for length and clarity.

EVAN BRAY: So the good news is that there is an additional $331 million coming in. Is that a result of oil revenues that pump that number up, minister?

JIM REITER: Yeah, the biggest part of it is the increased rate or price of oil. For every dollar a barrel that oil’s at, it’s worth about $17,000,000 to the provincial treasury.

So when when you get a surplus like that, is it earmarked for anything in particular? Does it just go into general revenue?

REITER: When we’re in a situation like we are right now, we’re just over $800 million in deficit, so it would just go towards regular operating, just the regular fund for the year.

We see about an $11 billion swing in Alberta as a result of the oil revenues. Is it that drastic of a difference between how much oil we produce and Alberta? Why are we seeing such different numbers?

REITER: Yeah, it is. Alberta’s economy largely flows with oil, as does their provincial treasury. They produce massive amounts of oil compared to us. Oil is very important to our economy, but certainly not to the extent it is in Alberta.

You have a panel of experts that help try to point where where that oil price will be, and so sometimes when we see a surge, that’s where we see this. Is there a big difference between what we predicted and what Alberta did? Does that account for any of this?

REITER: We’re usually fairly close. They have a similar process to follow, so we’re usually within a few dollars a barrel of what we’re projecting. We have projected a budget time oil at $59.75, and now, with just the geopolitical situation in the world, it’s been substantially higher, so we’ve upgraded it in this forecast to $75 a barrel. All commodities are so volatile. That’s annualized. That’s the price it would have to be at for an entire year to have that impact. It fluctuates wildly, and you know anybody that follows that market can see that.

What about potash, minister? With the Strait of Hormuz and all of the conflict in the Middle East, our understanding is that a lot of fertilizer-related products are are stalled there. Has that had any impact from a revenue standpoint for the province?

REITER: It’s pretty stable right now. We watch it closely. Potash has a huge impact on the Saskatchewan treasury, so we watch that carefully. We’re very bullish on potash in the long run. We’ve got the BHP mine coming on stream in the next number of months. That’s going to help revenues, but right now, not a dramatic swing.

If the only story was the fact that oil prices gave us a boost in revenue, that would be a good news story. But it appears that spending has been a pressure point as well. In the forecast, or at least on the review of the first quarter, we spent a little more than we took in. What were those pressure points? I know health care was one that you outlined. Can you talk about how health care played into this?

REITER: At a very high level, roughly, the extra revenues were about $300 million, as we mentioned largely due to the price of oil, and the offsetting expenses were roughly in the same amount, about $200 million on health-care pressures and $100 million on flooding pressures. There was some substantial flooding on the east side of the province earlier this year, so it’s essentially offset. In the $22 billion budget, a $6 million difference is a tiny fraction of 1 per cent.

When it comes to health-care expenses, what I understood is growing service demand is part of it, inflation is part of it and compensation costs are part of it. I know there’s a couple of contracts that haven’t been settled yet. Was there something unexpected in there in terms of compensation that that took a gouge out of that?

REITER: The compensation they’re talking about there isn’t a collective bargaining agreement. It’s largely pressures on doctors’ costs, those sorts of things that we try to predict and budget as close as we possibly can, but there’s extra costs there. The collective bargaining agreements you’re talking about, Evan, that didn’t factor in yet. We’ve got some agreements that we hope will be settled in in the very near future. When they are, we’ll certainly pay accordingly. We want to make sure our great health-care professionals are paid appropriately, but that’s not factored in on this.

If you’re talking about doctors, is that directly related to the growing service demand that was highlighted?

REITER: Yeah, it would be largely because many doctors are on fee for service. They’re not on a fixed salary, so it can fluctuate.

I know crop insurance was brought up, and I think that had some people scratching their heads, because we haven’t even really started harvest yet substantially. But this this actually is insurance claims that would have been due to flooding and unseeded acres?

REITER: Yes, that’s exactly right. I mentioned earlier there was a lot of rain and a lot of flooding issues on the east side of the province earlier this year, so that’s largely due to unseeded acres. Crop insurance as a whole, we’re a few months away from knowing what that will look like. The weather today during harvest time can have a huge impact, so we won’t know until the harvest is in the bin.

I’m guessing a budget is is basically a best estimate, after these first quarter results come in, is there any second guessing any of the things that would have been laid out in the budget for this year?

REITER: I think the priority for our budget this year was affordability. Everybody’s feeling the inflationary pressures, and so we had a number of measures to address that. We’re happy we did. There’s several programs we put in place. Active Families Benefit, First Time Home Buyers, the list goes on. The big one to me is income tax cuts. I’m glad we did the income tax cuts, and I’m glad we index income tax. A family of four in Saskatchewan, on their first $65,000 of income, pays no provincial income tax. We think everybody’s feeling the inflationary pressures, and nobody knows better where they should spend their money than the person themselves.

One of the things the NDP was calling on the government to do with that oil revenue surplus is to look at a reduction of the provincial tax on gas as a way to help with with cost of living. Is that ever a consideration or something that you’ve debated as as part of your government caucus?

REITER: Our government’s proud of where we’ve been at on reducing taxes and eliminating taxes since we had the privilege to form government. Certainly they’re all in the mix when we look at what we can do for affordability. The issue with the gas tax is, first of all, oil fluctuates wildly to begin with, which impacts the price of gas. And then the other part of that is all the gas tax goes towards our highways budget. We spend over three quarters of a billion dollars on our highways every year, and about $500 million of that comes from the gas tax, so when (NDP finance critic Trent) Wotherspoon comes on, he’ll preach that. He has been for a long time, but he doesn’t tell you where the rest of that highways budget is going to come from. When the NDP were in government, they were notorious for under-funding highways, and we’re not going to do that.