Saskatchewan’s next government would be well advised to shelve a massive irrigation project that would produce a poor return on investment.
Saskatchewan’s New Democrats spent the first week of the 2024 provincial election campaign promising to finance their now-released platform by cutting and gutting Saskatchewan Party “waste and mismanagement.”
The document begins with an extensive disclaimer, detailing how the report does not constitute an audit. It goes on to say that “significant” assumptions were used, which were entirely provided by the government.
The report displays “pessimistic,” “base” and “best” case scenarios. This is standard practice in the preparation of financial projections.
Even then, the best case scenario offers a derisory return. The cost of the project is $1.15 billion, but the maximum projected tax revenue spread over 50 years is $770 million, less than the cost, and only 77 per cent of which accrues to Saskatchewan. In other words, the government is promising to lose money.
Then there’s the economic return. Over 50 years, GDP would rise by a maximum of $8.6 billion. Only 75 per cent of the increase would occur in this province, leaving a maximum increase to Saskatchewan’s economy of $6.4 billion. That amounts to a compounded annual return of 3.5 per cent.
Alberta’s Heritage Fund has had a rough ride over the past several years, but over the last five years it averaged returns of 6.4 per cent, while managing 7.6 per cent returns over the last decade.
Leaving aside the fact that funds like the Heritage Fund or the Canada Pension Plan would have earned more by investing in index funds like the S+P 500, 6.4 per cent far exceeds the returns promised by Saskatchewan’s government.
Compounding returns of 6.4 per cent would bring that $1.15 billion investment to a value of $25.6 billion over 50 years, all of which would stay in Saskatchewan.
If the government withdrew four per cent per year from such a fund, returns would substantially dampen, but the addition to revenue would be $4.5 billion, paying for the project’s cost and then some.
Reasonably, such a fund could obtain 10 per cent long-run returns, which would leave the fund at a value of $21.2 billion, providing substantial additional revenues on four per cent withdrawals of $14.2 billion.
This would be a good use of the taxpayer dollars on the table for this project, particularly given that those dollars could benefit all people in Saskatchewan.
The government is attempting to sell Saskatchewan taxpayers on a project subsidizing a minuscule fraction of Saskatchewan’s population.
This is a project based on assumptions wildly dishonest to Saskatchewan taxpayers and completely detached from any basic principles of sound financial management. Even the presumed returns are abysmal, and result in financial loss.
This egregious example of government waste should be a central plank in the campaigns of all parties vying to replace the current government.
Whoever forms government next week must commit to scrapping this project and investing public dollars in a manner consistent with sound financial practice and the best interests of Saskatchewan taxpayers.
If this project continues following KPMG’s report, that would be a gross disservice to the people of Saskatchewan that our politicians are meant to serve.
Ty Thiessen is a University of Saskatchewan student researching methods of government finance and debt reduction.
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