SaskaBoom 2.0 is just a bit more evident now that we’ve seen the mid-year accounting of the provincial government’s income and expenditure.
The big story emerging from the Q2 summary is on the revenue side.
Tax revenues – income and sales levies – rose sharply, more than $600 million ahead of the budgeted estimate only six months ago. Add to that a dramatic rise in resource royalties. They were up $669 million. All other income streams – Crown corporation profits, transfers from Ottawa and other own-sources – were also ahead of estimate.
On the downside, spending on healthcare due to COVID was up and the drought triggered payments of $2.4 billion directly to farmers from the provincial treasury. That cash flow will no doubt result in further sales tax revenues down the road, when the bills for crop year 2021 are paid.
The underlying story in this, though, is the upward trend line. Droughts, while financially painful, tend to be short-lived (the Dirty Thirties excepted) so the next 18 months should be interesting. And here’s what to watch.
Government accounts are an indicator of an economy’s direction but they are a lagging indicator. When tax revenues, for example, are rising, it signals growth in income levels across the economy. But it can take a while for the numbers to show up. Consider this: A dollar of income earned in January is included in the annual total which is tallied at the end of December of that year, and then reported on a tax return the following April. So, that dollar generated in January doesn’t show up in the government’s books until at least 16 months after it is earned … a lagging indicator. Technically, it is a bit longer, but you get the drift.
Resource revenues tend to have shorter reporting cycles but are still a trailing indicator.
Nonetheless, what the mid-year report with a $2.4 billion increase in revenue compared to the spring budget shows is that the boom has been entrenched for months. We’re just getting the numbers to define its magnitude now.
Many in commodity-based industries in this province – sectors such as mining – operate on a theory that commodity cycles tend to last 15 years … seven up, seven down and one in transition. History tells us that the last downturn came in November of 2014, exactly seven years before the Finance Minister tabled her mid-year report.
In other words, we’re in the early stages of a cycle that shifted our economy from the doldrums to the upcycle and now we have the numbers to prove it. Enjoy the ride.
The boom has been entrenched for months. We’re just getting the numbers to define its magnitude now.