The Saskatchewan Teachers’ Federation undertook almost as much job action in the first five weeks of 2024 as during the previous five decades since its formation. Teachers are quite understandably concerned about having to manage larger and more complex classes with fewer supports.
More on the situation in Saskatchewan classrooms here:
On February 1, the day that Saskatchewan teachers began rotating strikes, the provincial government released year-end figures on 2023 potash sales. This same-day coincidence should underscore the connection between the underfunding of public services and the undercollection of resource revenues.
The Teachers’ Federation reports that an additional $400 million is needed to restore education funding per student in the province to the level in place a decade ago.
Underfunding is also apparent in healthcare, another public service that people of all political stripes recognize as essential to our wellbeing. We hear talk of a crisis in access to care across Canada, and the Canadian Institute for Health Information reports that access to care in Saskatchewan is worse than the rest of the country.
Fixing these problems should be the highest priorities for a provincial government, but will take significant investment. Money seems tight with a provincial deficit of $250 million forecast for the 2023-24 fiscal year. Is money really that tight, and why?
Getting A Fair Share
Why is a province so rich in natural resources struggling to fund basic public services? Keeping up with inflation is a real challenge for education, healthcare and other programs, but commodity prices have increased far more than the rate of inflation. Saskatchewan sold $20 billion of non-renewable resources in 2021. The Russian invasion of Ukraine drove up demand for commodities, nearly doubling this figure to $36 billion in 2022.
These natural resources belong to the people of Saskatchewan. Yet only $2.9 billion of non-renewable resource revenue in 2021-2022 and $4.6 billion in 2022-23 were returned to the provincial coffers. In other words, the people of Saskatchewan received only about one-sixth of the value sold. The Sask. Party has fiercely defended provincial jurisdiction over natural resources, but they aren’t using that jurisdiction to collect an adequate provincial return.
Funding shortfalls and budget deficits in the hundreds of millions pale by comparison to billions in forgone resource revenues. That is not to say education and healthcare should be funded entirely from volatile commodities. But collecting resource windfalls and using them to repay debt or develop a savings fund would generate steady returns to pay for public services in subsequent years.
Digging Deeper into Potash
Sanctions against the world’s other major potash producers, Russia and Belarus, boosted the value of Saskatchewan potash sales above its oil sales. Last year, I wrote a policy brief for the Johnson Shoyama Graduate School of Public Policy calling attention to the $10-billion potash windfall in 2022. We now have figures for 2023 as well.
Saskatchewan produced almost exactly the same tonnage of potash in 2021, 2022 and 2023. Price fluctuations changed the value of these sales from $8 billion in 2021 - already more than any previous year - to $18 billion in 2022 and $11 billion in 2023.
This means that, compared to 2021, Saskatchewan potash mines made an extra $10 billion in 2022 and an extra $3 billion last year. These gains arose not from increased production, investment or risk-taking by companies but from international events beyond their control.
Provincial potash revenues were $1.3 billion in 2021-22 and $2.4 billion in 2022-23. Strangely, the $10-billion windfall yielded little more than $1 billion of additional revenue from royalties and the potash production tax. Even including the resource surcharge and provincial corporate tax paid by potash companies, Saskatchewan’s treasury received only one-quarter of the 2022 potash windfall.
The provincial government’s Mid-Year Report forecast only $0.8 billion of potash revenue for 2023-24. It is hard to understand how this figure will be so low given that potash prices and sales in 2023 significantly exceeded 2021.
A cynic might suggest that an unduly pessimistic Mid-Year Report allowed the provincial government to present a bare cupboard in recent and ongoing contract negotiations with doctors, teachers and public servants or to plan for a pre-election sweetheart budget. In any case, it seems likely that the upcoming budget will unveil potash revenues above the mid-year forecast. This revelation could easily balance the provincial books.
Closing Loopholes
Even if potash revenues exceed the mid-year forecast, they will still amount to only a small fraction of potash profits because of royalty and tax loopholes. Potash companies have been allowed to write off 120% of new investment since 2003 in calculating the profit tax component of the potash production tax. The provincial government also exempted from profit tax future output above the 2001 and 2002 average. For twenty years, companies have deducted more than the amount invested against existing production and paid no profit tax on additional production even as potash prices rose. Today, more than a third of Saskatchewan potash sales are perpetually exempt.
A wide range of economists - including yours truly, Jack Mintz and Jim Marshall - have recommended limiting write-offs to 100% of investment and restoring the profit tax to cover all potash output. The 2015 Saskatchewan provincial budget promised “a review of the entire potash royalty and taxation regime” that was never conducted.
Former Saskatchewan finance minister Eric Cline, who instituted the 2003 incentives, has a new book, Squandered, that concludes it is past time to collect a better public return from potash.
The only objection to getting a better deal seems to be that supposed competition from abroad would reduce production in Saskatchewan. In fact, more than 90% of Saskatchewan potash is produced from low-cost mines originally built in the 1960s that are not going anywhere. Saskatchewan owns the world’s richest potash reserves, which is why BHP is building a new mine at Jansen. Even if provincial royalties and taxes increased, it is hard to imagine western companies choosing to shift investment to Russia and Belarus in the light of current geopolitical events.
Saskatchewan is an enormously wealthy province, yet its health is suffering. Schools and hospitals are struggling to provide core services and homelessness is on the rise. Rather than letting windfalls blow away, we should be gathering all we can from the extraction of provincial resources. With soaring profits leaving the province, now is the perfect time to review royalties and resource taxes in order to rebuild education, healthcare and other key provincial services. It’s time to use public power for the public good.
Erin Weir is a consulting economist and the former MP for Regina–Lewvan.
This information should be shared by the Saskatchewan NDP. There is a great deal of dissatisfaction with our current government. Demanding the Saskatchewan people get a fairer share of resource profits should be ahigh priority for the party.