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Saskatchewan election: What if potash tanks?

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Regarding the NDP platform's reliance on additional potash revenue, columnist Murray Mandryk asks, "What if potash tanks as it did in 2009?"

Of course, budgets are necessarily based on assumptions about future commodity prices. Saskatchewan Finance estimates that each dollar of change in the price of oil alters provincial revenues by $20 million (page 35). So, if a barrel of oil is $10 cheaper than projected, the future surpluses needed to fund the Sask Party platform would evaporate.

A government of either political stripe could make up for an unexpected revenue shortfall by drawing upon the Growth and Financial Security Fund, which was $711 million as of the last provincial budget.

A longer-term solution is to contribute a portion of resource royalties to a savings fund. Over time, the proposed Bright Futures Fund would translate volatile resource revenues into a more stable stream of investment income.

It's also worth remembering what actually happened in 2009. Provincial potash revenues tanked because of the specific royalty regime in place, even though potash mines remained hugely profitable.

Saskatchewan potash sales were worth $3.1 billion in 2009, $900 million more than in 2006 or 2004 (page 31). The industry's costs were presumably lower in 2009 since it extracted only half the volume of potash it had in those prior years. Due to higher potash prices in 2009, the companies enjoyed a windfall profit of at least $900 million over and above the healthy profits collected previously.

Based on an improved royalty regime, the NDP platform budgets additional potash revenues of up to $700 million annually. No one is predicting a repetition of 2009, but New Democrat projections are so cautious as to be plausible even in that context.

This article was first posted on The Progressive Economics Forum.

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