The Saskatchewan Election:
A 2020 Perspective
Fiscal Anchors Aweigh
By Dr. JASON CHILDS (PhD), Associate Professor, Department of Economics, University of Regina
Government spending and taxation feature heavily in election campaigns. For much of Saskatchewan’s political history, balancing the budget has been central in the campaigns of both left-winged and right-winged parties. The challenges of COVID-19 and shifts in political ideology have weakened this consensus on deficits and debt.
The change in the willingness of political parties to campaign without strongly committing to the idea of a balanced budget highlights a major shift occurring not just in Saskatchewan but nationally and internationally.
Budget deficits (as projected from campaign platforms) are an indication of a potential government’s willingness to enact policies that generate benefits now while deferring costs and risks to the future. Sustained budget deficits can require the type of austerity (large reductions in service provision and/or large increases in taxation), seen provincially under Premier Romanow, or federally under Prime Minister Chrétien in the 1990s, that aim to avoid devoting an ever-increasing share of government revenue to debt service costs or being shut out of debt markets entirely.
The incumbent Saskatchewan Party (Sask Party) pledged as part of their campaign to eliminate the deficit by the 2024-25 fiscal year. At the same time, it promised several tax breaks and new spending. The most expensive items in its platform, a home renovation tax credit ($124M), a reduction in the small business tax rate ($189M), and a rebate on power bills ($261.6M), have end dates. Their platform costing projects added $4.6B to Saskatchewan debt before generating a surplus of $43.4M in 2014-15. The total platform was costed at $848.8M, the bulk coming between 2021 and 2023 from temporary measures aimed at stimulating demand. Overall, the Sask Party plans to see the gross debt of the province rise from 25.5 per cent of GDP in 2019-20 to 35.9 per cent in 2024-25, adding approximately $45.5M per year in debt service costs to the 2024-25 budget.
The NDP promised to eliminate the deficit “as quickly as possible,” focusing instead on social spending priorities and introducing a wealth tax rather than building on the deficit. The proposed wealth tax was not projected to generate sufficient revenue to cover the additional spending promised in the NDP platform. The NDP platform predicted a deficit of $562.9M for the 2024-25 fiscal year. The NDP platform was costed at $2.7B, with a roughly even distribution of costs over the next provincial mandate, as the changes were intended to be permanent. The most expensive items in the mandate were removing the PST from construction labour ($800M), increasing funding to public education ($535.3M), increasing funding to long-term and acute care ($432M), and reducing SGI rates ($280M). This was to be partially offset by a wealth tax projected to bring in $120M a year. The NDP platform would see the province’s debt rise by more than $7.2B, increasing gross debt from 25.5 per cent to 36.5 per cent of GDP, and increasing debt service costs by $72.9M per year by 2025.
The remaining parties did not produce costed platforms nor commit to a timeline for eliminating the provincial deficit. The Progressive Conservative Party of Saskatchewan (Progressive Conservative Party), the Saskatchewan Liberal Party (Liberal Party), and the Buffalo Party of Saskatchewan (Buffalo Party) platforms were all sufficiently vague in their promises to make detailed platform costing ill-advised. However, the platforms of the Progressive Conservative Party and the Liberal Party suggest a fiscal position closer to the Sask Party. The Green Party of Saskatchewan’s (Green Party) statement of policies and principles (not a platform in the same sense as those produced by other parties) suggested a deficit in excess of the NDP’s. The Buffalo Party’s platform involved a complex interaction of enhanced provincial responsibility and the federal government ceding fiscal space to the province, making the impact on the province’s fiscal position highly uncertain.
Given the vagueness of other parties’ positions, we focused on the costed platforms of the Sask Party and the NDP.
Both parties relied on optimistic but plausible projections of revenue. In both baseline cases, revenue was projected to grow by 20.8 per cent over the next term of government, far exceeding the 5.2 per cent growth in revenue between 2015-16 and 2019-20 budgets. Both platforms did take the impact of COVID-19 on government revenue into account, showing a drop of 6.5 per cent between the 2019-20 budget and the projections used in party platforms. Revenue was projected to grow a more modest 12.9 per cent over pre-COVID-19 levels.
Despite both parties projecting significant budget deficits over the next term and relying on revenue growth to reduce or eliminate those deficits, there were significant differences in the approaches being taken. The incumbent Sask Party platform was built around the status quo level of government involvement in the economy and citizens’ lives. Rather than pursuing drastic changes in the size and scope of government, the party’s platform focused on temporary measures described as “Keynesian pump priming”—temporary increases in government spending and tax cuts to offset the impact of recessionary forces. The largest items in the Sask Party costed platform are all temporary, ending by the 2022-23 budget year.
The NDP platform offered no temporary changes that could be described as a traditionally Keynesian stabilization policy. The platform proposed a permanent increase in government spending and a net reduction in tax revenue, despite introducing a wealth tax. While the increased spending and tax cuts may have offered short-term stimulus similar to the temporary measures proposed by the Sask Party, the NDP platform could only be sustained over an extended period by revenue growth without additional increases in government spending.
Both platforms added significantly to provincial debt and debt service costs, reducing funds available for future program delivery. Similarly, both relied on revenues quickly returning to and surpassing pre-COVID-19 levels. A second COVID-19 wave, new lockdowns at home and among our trading partners will likely undermine these revenue projections.
Both platforms involved increased fiscal risk due to increased provincial debt but differ in the magnitude of this risk.
In their platforms, the two main parties provided different approaches to governance. The Sask Party’s costed platform can be described as applying traditional Keynesian economic stimulus in the wake of the COVID-19 recession. The NDP’s platform offered an increased government provision of goods and services financed by increased debt.