Oil revenues in Saskatchewan declined $661 million from last year’s budget; however the government is betting on potash to balance this year’s books.
Crude oil prices have plummeted in recent months for a number of reasons, but in Canada thousands of workers have been laid off, fewer oil wells are being drilled, and economies are struggling. Alberta has experienced a hiring freeze, and could be facing a revenue shortfall of $7 billion.
Despite the falling price of oil, Saskatchewan has been able to diversify, avoiding a potential shortfall. Oil was expected to account for 11 per cent of all revenues in last year’s budget but in reality only provided 6 per cent. The government is seeking economic diversity in the potash industry, which will experience tax incentives and predicted substantial growth this coming year.
“I think this is a feather in the cap with the Saskatchewan economy in a year like this, where we do have some challenges in regards to the oil revenues but we do have some other industries that are really performing well,” said Scott Moe, minister of the environment.
To boost the governemnt's potash revenues, interim taxation changes will be made. With these changes potash revenues are expected to be up “$400 million over last year’s budget,” according to a news release from Deb Young from the ministry of economy.
The new taxation structure of the potash production tax (PPT) will grant a “120 per cent super-deduction rate” on all capital expenditures in excess of revenues required to maintain operations.
With new tax deductibles on all capital expenditure for potash extraction and sales companies liek Potash Corpan will pay an additional $100 million in tax, according to the government.
“I guess we’ll see at the end of the year. Certainly the adjustment in the Canadian dollar has a significant impact on the potash industry,” said Trent Wotherspoon, NDP deputy leader.
“Every year (the government) comes out and they sing this song about budgetary balance and then the actual numbers roll in. Even through the best years of revenue through almost a decade-long boom, this government has struggled to balance the books at the end of the year,” he said. “They’ve added debt, they haven’t been able to save a dime for long-term savings, so their history isn’t one of putting forward responsible, sound budget.”
Though potash could offer a short-term solution to Saskatchewan’s current budgetary problems, potash revenues have generated little income for the province so far.
For example, in 2012 potash sales totaled in excess of $5 billion, but the province only saw seven per cent of the sales via royalties.
John Burton, a former CCF member and author of Potash: An Inside Account of Saskatchewan’s Pink Gold, advises a cautious approach when relying on potash as a main revenue stream. “Potash is going to be around for a long time. And the industry will have its ups and downs. You don’t just develop a policy based on what’s happening at the moment or what happens in one particular year,” said Burton.
Saskatchewan has the largest potash reserves on the planet, accounting for approximately 53 per cent of global reserves. “Certainly the potash industry is an important one to Saskatchewan. World class resource, world class producers, exceptional workers and it’s important to our province,” said Wotherspoon.
However, the nature and application of potash can also affect the global price and demand, which could impact our budget next year. “Potash, in many parts of the world where it’s used does not need to be used every single year. That then gives the buyers some strength if the potash prices go too high then they can say ‘Stuff it – we can wait it out,’” said Burton.