Saskatchewan's Debt Burden: A Vicious Circle

Strategic Insights -

With the next four years of government critical in reducing debt and meeting external expectations, Saskatchewan's New Democratic Party faces substantial challenges. The province's implicit expectations for debt reduction will be difficult to meet, given the current circumstances of large tax increases, cost control, and a sluggish economy. Provincial revenues will come under pressure, and the situation will be worsened by cuts in federal transfer payments. To fulfill even modest external expectations, the Saskatchewan government will have to cut spending substantially more than the annual promise of $10-million.

Key Takeaways:

  • The Saskatchewan government has created implicit expectations on Bay Street and Wall Street for substantial, continuing debt reduction, which will be difficult to meet given the current circumstances.
  • The province's budget will come under pressure due to a sluggish economy, cuts in federal transfer payments, and a lack of tax room left.
  • The government's existing low administrative spending, exclusive of interest on the debt, is already the lowest on a per-capita basis in Canada.
  • The Saskatchewan government must lay the groundwork for a protracted period of economic expansion by establishing a set of comparative economic advantages over neighbouring jurisdictions.
  • Tax cuts in Saskatchewan are not supportable in the absence of equal or higher cuts in government outflows.
  • The solution to reducing debt lies in selling off the Crown corporations and using the proceeds to lower the debt.
  • Breaking up SaskPower into independent generating units and privatizing the provincial transmission grid could result in a significant reduction in debt and interest costs.

Statistics:

  • Saskatchewan's government spending, exclusive of interest on the debt, was already the lowest on a per-capita basis in Canada.
  • Provincial revenues will come under pressure due to a sluggish economy and cuts in federal transfer payments.
  • The Saskatchewan government's annual promise of $10-million in cost reductions is unlikely to meet the implicit expectations for debt reduction.

Sources:

  • Calling the Shots: How Ministers and Cabinet Govern, Ryan, Graeme Andrew (1991)
  • The Politics of Canadian Banking, Flanagan, Tom (1987)
  • The Economic and Social Impact of Cultural Policies in Canada, Canadian Government Information, S. Rotondo
  • Setting the Rules: The Politics of K-12 Education in Canada, National Cooperative Foundation of Canada.