2017-18 Budget: Meeting the Challenge
Released on March 22, 2017
Plan to Balance in Three Years
The province’s 2017-18 Budget released today controls spending, modernizes and expands the tax base, and invests in priority government programs, services and infrastructure projects for the benefit of all Saskatchewan people. It also outlines a plan to return to balanced budgets in three years.
“Our challenge is clear,” Finance Minister Kevin Doherty said. “Resource revenue has declined by more than $1.0 billion and has stayed low for three years, depleting reserves and the rainy day fund.
“We need to move away from our level of reliance on resource revenues while at the same time ensuring important government programs and services are affordable and sustainable in the long run, and that our economy remains strong. The 2017-18 Budget will meet that challenge.”
A deficit of $685 million is forecast for this year. A smaller shortfall of $304 million is projected for 2018-19, followed by a $15 million surplus in 2019-20 and a $183 million surplus in 2020-21.
The Provincial Sales Tax (PST) rate is being raised by one point, from five to six per cent, and a number of PST exemptions are being eliminated to help meet the current financial challenge. At the same time, the government is shifting away from taxes on income and productivity by lowering personal and corporate income tax rates and introducing new growth tax incentives.
“Every Saskatchewan taxpayer at every income level will see a decrease in their income taxes, and those whose income is too low to pay income tax will see an increase in the Saskatchewan Low-Income Tax Credit they receive,” Doherty said.
Tax expansion and measures include:
- PST will now be applied to children’s clothing, restaurant meals and snack foods, insurance premiums, construction services and permanently mounted equipment used in the resource sector;
- Education Property Tax is increasing to provide 40 per cent of funding to K-12 education;
- the exemption for bulk purchases of gasoline is being eliminated;
- The exemption for bulk purchases of diesel fuel is being reduced to 80 per cent of purchases to reflect the changing nature of farming and primary production operations and on-road and personal use of this fuel;
- The exemption for used cars will continue, but the value of a trade-in will no longer be deductible in determining the PST on the purchase of a new vehicle;
- Tobacco taxes are increasing, as are alcohol markups;
- Personal income tax credits for education and tuition expenses and the Employee Tool Tax Credit are being eliminated;
- The indexation of Personal Income Tax is being suspended;
- The Labour-Sponsored Venture Capital Tax Credit rate is being reduced; andThe Corporation Capital Tax on large financial institutions is being increased and the provincial income tax preference for credit unions is being phased out.
To help mitigate the effect of the tax changes, the annual Saskatchewan Low-Income Tax Credit will be enhanced by $100 per adult and $40 per child.
In total, measures being taken this year will add a projected $900.0 million in incremental tax revenue. When taken as a whole, the impact on real Gross Domestic Product (GDP) of the PST base expansions and rate increase, and other revenue measures, are largely offset by the positive economic impact of the income tax reductions, the increase in operating spending and ongoing investment in infrastructure.
(More details of the tax changes are outlined in the accompanying Revenue/Tax backgrounder).
Total revenue is forecast at $14.17 billion, up $141 million from last year’s budget and up $471.0 million from the third-quarter forecast. Expense is forecast at $14.80 billion, up $342.0 million from last year’s budget but down $183.0 million from the third-quarter forecast.
This budget includes a $250.0 million reduction for total public sector compensation funding. It also includes a $300.0 million contingency to protect against unexpected in-year revenue declines, potential expense pressures due to higher utilization, and unforeseen costs related to natural disasters such as flooding and forest fires.
The 2017-18 Budget continues to invest in the programs, services and capital valued by Saskatchewan people. It is built upon a strong foundation of base funding that has grown over the past ten years.
Municipal Revenue Sharing is $258.0 million, and maintains the formula based on one point of the PST. This amount of revenue sharing represents a greater than 103 per cent increase since 2007-08.
Since 2007-08, total investment into three priority areas—health, education and social services and assistance—has increased by nearly 72 per cent or $4.4 billion. These three areas—projected to be a combined $10.6 billion in 2017-18—make up nearly three quarters of government’s total expense.
- In 2017-18 total spending for health is forecast to be $5.6 billion, an increase of $39.0 million or 0.7 per cent over last year’s budget.
- Education expense—which includes both the K-12 and post-secondary sectors, budgeted at $3.6 billion in 2017-18, down $45.1 million or 1.2 per cent from last year.
- Social services and assistance expense is nearly $1.4 billion in this budget, an increase of $113.0 million or 9.1 per cent over last year.
“Meeting the challenge requires changes in the delivery of services,” Doherty said. “Changes are taking shape in health, with the move to one health authority. Governance changes in education and the redesign of the student loan program are aimed at better outcomes. The planned redesign of income assistance will ensure our most vulnerable continue to receive needed support.
“The changes are necessary to ensure important services remain effective and sustainable in the long run.”
The 2017-18 Budget includes $3.7 billion for investment in Saskatchewan’s infrastructure. The commercial Crown sector—largely SaskPower, SaskEnergy, SaskTel and SaskWater—is investing $2.1 billion, and $1.6 billion is being invested by executive government ministries and agencies.
“Capital projects create construction jobs at a time when sectors such as mining and oil and gas are experiencing commodity price downturns,” Doherty said. “Investing in roads and highways improves safety and helps Saskatchewan products move to markets over an expanded and improved transportation system.” (More information on capital is highlighted in a separate news release and backgrounder).
In some areas, government funding will be reduced, suspended or eliminated entirely. Those decisions were needed to control spending and put Saskatchewan on track to balance the budget within three years.
The Saskatchewan Transportation Company (STC) is being wound-down by the end of May 2017. Ridership has declined significantly and costs have increased over the past 10 years. STC has forecast that $85.0 million would be needed from government to continue operating for the next five years.
“STC has become unsustainable without subsidies, and that money would be better spent on other areas such as health care, education and infrastructure,” Doherty said.
This budget discontinues SaskPower and SaskEnergy’s payments in lieu of taxes to municipalities, resulting in government retaining approximately $36.0 million. Because this change disproportionately impacts the City of Regina, measures will be taken to mitigate that impact.
Other spending restraint has been undertaken, including suspension, deferral and in some cases elimination of funding. (Spending decisions are highlighted in ministry news releases and in the Key Facts and Figures backgrounder).
“This year’s budget sets a course to respond to the current challenge and return to a balanced budget by 2019, ensuring government services remain sustainable and affordable in the long run,” Doherty said. “It controls spending and expands and modernizes the tax system by shifting to consumption taxes and lowering income taxes.
“These measures promote productivity and growth that help keep our economy strong.”