Saskatchewan badly needs a fiscal framework that features a sustainability fund after the government abandoned its commitment to balanced budgets.
One month after winning its first election, the Saskatchewan Party introduced amendments to the province’s fiscal framework, requiring balanced budgets. Eight years later, Saskatchewan’s books were in the red, and have been in all but one year since.
First and foremost, the framework would accommodate the business cycle. Previous legislation had exceptions to the balanced budget rule for disasters, and an economic downturn could be one such exception.
When an exception was triggered, the province was required to offset the deficit in future budget years.
A fiscal framework could also, instead of using exceptions, simply require the province to balance the budget on a net basis over five years, with surpluses offsetting deficits. Five years is ample time for the province to adjust to economic cycles.
The next part of the legislation would bring back a rainy day fund for surpluses. A portion of any surplus should go to a “sustainability fund,” with withdrawals capped at four per cent per year.
Withdrawals will grow exponentially in value over time, making it easier for the province to balance the budget and pay down debt.
The sustainability fund would be the priority over immediate reductions in debt, given that its rate of return is likely higher than debt repayment. In 2022, Alberta’s Heritage Fund had a 10-year average return of 8.5 per cent, while a 30-year Alberta Bond had a rate of 4.7 per cent.
Economist Todd Hirsch compiled a series of fiscal recommendations for Alberta in 2023. One of those recommendations was to provide public reporting on the return on investment from savings, debt repayment and investments in physical assets.
If this were included in a fiscal framework, citizens would be able to assess the efficiency of allocated surplus funds.
On top of that, the previous framework had a requirement for assessing the efficiency of spending decisions. These assessments were not made public, limiting their incentive to focus on efficiency.
A fiscal framework for Saskatchewan could include similar assessments that would be transparently released and these assessments could go further than before.
According to the Canadian Taxpayers Federation, Saskatchewan spends an average of $900 million a year on corporate subsidies. Most economists contend that such subsidies do more harm than good, distorting investment decisions and displacing economic activity and jobs.
Publicized assessments could include specific requirements to assess public dollars flowing to businesses for their economic returns. Such assessments would not only consider the direct returns of spending, but also whether returns in one region came at the cost of a loss in others.
An assessment along these lines conducted by economist John Lester at the federal level found that fixing current subsidy programs could save Ottawa at least $25 billion a year. Annual assessments like this in Saskatchewan would thus likely yield significant savings.
In any case, Saskatchewan cannot go on without a fiscal framework. Whoever forms government this fall must commit to passing a fiscal framework that is realistic and sustainable, enabling them to fix provincial finances and leave wealth instead of debt behind for future generations.
Ty Thiessen is a University of Saskatchewan student researching methods of government finance and debt reduction.
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