While Finance Minister Ken Krawetz characterized this week’s provincial budget as an example of “balanced growth,” and NDP Finance critic Trent Wotherspoon likened it to a “credit card budget,” perhaps the best metaphor to explain the fiscal decisions would be “paradox of plenty.”
What the hell is that you say? Well, the “paradox of plenty” or “resource curse” has usually been used to describe our petroleum-endowed neighbor to the west, but the budget — while seemingly pedestrian — should force us to ask ourselves if we are not suffering under the same fiscal delusions as our Alberta cousins.
One of the key aspects of the paradox is that governments’ over-reliance on volatile resource commodities as a permanent source of revenue will lead to inefficient provision of government services and “stop-go” fiscal policies characterized by erratic cycles of binge spending and tightening austerity.
Why should this concern Saskatchewan? Well over the past five years, non-renewable resource revenues represented 26 per cent of Saskatchewan’s total government revenues, higher than Alberta’s at 25 per cent. Even though our resource portfolio may be better diversified, we have become more reliant on volatile resource commodities to fund government operations than even Alberta — the poster child for the paradox of plenty.
Indeed, as a recent Canada West Foundation report noted, Saskatchewan’s “over-reliance” on using resource revenues to fund current spending was shown again this year when resource revenues came in $563 million lower than expected in the 2012-13 budget. And of course, this pales in comparison to the $1.8 billion dollar budget shortfall caused by collapsing potash prices in 2009.
As the CWF report explains, “It is difficult for provinces to balance budgets and make long-term strategic plans for building a prosperous economy when dependent on a highly inconsistent revenue stream.”
However, the further danger is that when resource revenues are abundant, governments have a propensity to whittle away other, more reliable sources of revenue. Certainly that has been the case with the current Saskatchewan government. As Saskatchewan has become ever more reliant on resource revenues we have seen the corporate income tax reduced from 17 to 12 (soon to be ten) per cent, the Small Business Tax rate cut from 4.5 to 2.0 per cent, the flattening of personal income taxes with the top marginal rate reduced to 15 per cent and the lowest provincial sales tax in the country.
The pernicious effect of all of this is that when the supposed bounty of resource revenues does not appear, governments reliant on these revenues must scramble to make up shortfalls through spending cuts and other ad hoc and piece meal revenue generation strategies like the increased cigarette and alcohol taxes revealed in today’s budget. The possibility of restoring corporate or high-income taxes to a sustainable level appears completely off the table while the thought of raising resource royalties is simply beyond the realm of this government’s imagination. It is only through such logic that we can get a statement from our finance minister who in instituting the new “sin” taxes stated:
“We looked at all kinds of measures of obtaining revenue, and this is a choice that government made,” the finance minister remarked Wednesday.
So the government admits it needs to find new sources of revenue but this was the best, most sustainable source of new revenue it could find? Please See above…
The inconvenient truth in this budget is that we simply cannot afford to maintain and improve all the programs and services we cherish under our current dwindling tax regime. Without the sporadic and uncertain infusions of resource cash to supplement government revenue, we will constantly have to endure the raiding of crown dividends, higher tuition fees, the erratic and haphazard cuts to programs and services and growing public debt.
Thankfully, we have not eviscerated the capacity of the government to raise revenues to the same extent that Alberta has and that has prevented us — for the time being — from suffering the same spiraling deficits that currently plague that province. But if we continue to stake the long-term economic health of our province on the high-risk resource commodity lottery we may yet become the new Canadian poster child for the “paradox of plenty.”
Simon Enoch is Director of the Saskatchewan Office of the Canadian Centre for Policy Alternatives. He holds a PhD in Communication & Culture from Ryerson University in Toronto.