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High commodity prices pump up the public finances of a Prairie province, transforming an expected deficit into a solid surplus. Alberta? Yes. But also Saskatchewan.

On Tuesday, Saskatchewan was the latest province to report better-than-expected finances. It’s the most recent announcement of the shrinkage or outright disappearance of the oceans of red ink that drowned provincial budgets in the worst of the pandemic.

For Saskatchewan, like neighbouring Alberta, the high price of oil is a big part of the good news. But Saskatchewan also benefits from the high price of the fertilizer potash, of which the province is the world-leading producer. All this has sent 2022-23 projected revenue soaring to $19.17-billion – that’s $2-billion more than forecast when the budget was tabled in March. Resources account for most of the gain, with the price of oil a third higher than expected and potash about 50 per cent higher. A projected 2022-23 $463-million deficit is now pencilled in as a $1.04-billion surplus.

This trend of major improvements in fiscal fortunes began a year ago.

The pandemic was far from over, but the biggest outlays of public spending had passed. The return on investment of that public spending was starting to pay off in mid-2021 with an economy that not only survived a full-on shutdown at the start of the pandemic but that recovered far more quickly than expected. The tangible evidence was seen in the improvements in the provinces’ books – higher revenues, lower emergency spending, and much smaller deficits.

This year, the trend continues on. It’s not going to last forever – ultralow unemployment rates can’t go lower, and resources prices have recently moderated – but today, the provinces are in markedly better fiscal shape than even the predictions of just a few months ago suggested. That means there’s more flexibility for important investments, from health care to transit, and less worry about the size of the debt loads. And that doesn’t just apply to provinces like Saskatchewan and Alberta, profiting from a resource bounty. The positive fiscal story has echoes across the country.

Quebec last week released a fiscal report ahead of the October provincial election; it showed a previously expected deficit of $7.35-billion in 2021-22 is likely to come in as a shortfall of just $294-million. For 2022-23, the deficit is now predicted to be $1.66-billion, down from the $6.45-billion deficit predicted in the budget in March. (The Coalition Avenir Québec government avoided a surplus by sending $500 cheques to most Quebeckers, and promising more if re-elected).

Quebec also appears to be on track to dodge almost $20-billion worth of deficits previously forecast over the next several years. Quebec’s debt-to-GDP ratio is expected to fall to 37.7 per cent by 2026, far below the last prediction of 41.9 per cent. The ratio was near 55 per cent a decade ago.

The good news of higher provincial revenues and strengthened bottom lines is welcome. But beyond more reasonable to shoulder debts, there is the important question of what provinces are doing, or not doing, with the extra cash.

In Saskatchewan, the government is handing out $500 cheques to all adults – dubbed the “Saskatchewan Affordability Tax Credit cheque.” That’s 900,000 cheques, at a cost of $450-million. In a time of inflation, pouring more money into the hot economy doesn’t make sense – except when the calculus is political. Which is why Saskatchewan is not alone; see Ontario’s pre-election rebate cheques to car owners.

In Ontario, leaving aside the free money for drivers, part of the improving fiscal picture has to do with money that isn’t being spent. This year’s deficit is now forecast at $18.9-billion – far lower than an earlier $27.7-billion forecast. The picture in coming years is expected to continue to improve, yet that’s in part because health care spending is budgeted to fall in real terms over the next two years, relative to population growth plus inflation. That’s probably not doable, given the current health crisis – and the fact that Ontario is already Canada’s lowest per-capita spender on health.

Over all, however, the provinces are in increasingly stronger fiscal shape, even compared with a few months ago. It’s unusual for fiscal fortunes to shift so suddenly, but the pandemic made everything topsy-turvy. It was an extraordinary time, when extraordinarily large deficits were the right medicine. But all of that – both illness and cure – is now history. How times have changed.

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