Balance: Fiscal Responsibility in Saskatchewan

The Honourable Janice MacKinnon

The 1990s have seen an encouraging trend by Canadian governments towards fiscal responsibility though we have used different approaches to accomplish this. Now we face the new challenge of ensuring that our economies continue to grow and to provide Canadians with economic opportunities not only today but also through the next century. In Saskatchewan, we are taking on that challenge in much the same way that we managed our fiscal situation. In this chapter, I shall first describe where we were and what we did. Then, I want to describe how we are taking the same kind of approach--one of balance--to growing the economy.

At the end of 1991, when the Saskatchewan New Democratic Party took office, our province faced three major challenges:

• the largest per-capita deficit in Canada
• the largest per-capita debt in Canada
• business had stopped investing and creating jobs.

This called for difficult choices. The top priority was to stop the financial bleeding. We also wanted to take a balanced approach and to protect the most vulnerable of our citizens. We could not balance the books on the backs of the sick, the aged, young people, and the unemployed. To achieve this balance, we had to be innovative. Together with the Saskatchewan people, communities, businesses, and co-operatives, we designed a four-year, balanced plan to restore our finances.

In some cases, we reduced expenditures; in others, we redesigned programs; in still other cases, we increased revenues. We cut spending dramatically. We redesigned our health system but our decision was to protect our vital social-safety net. Overall, not one dollar was cut from the social envelope from the time we took office.

The choices were difficult but we believed that it was essential to set the stage for growth by putting our financial house in order. We were the first senior government in Canada to balance our budget and the first to start paying down debt.

When our finances stabilized, business started to invest once more and our economy started to grow. By 1996, Saskatchewan led all provinces with 3.3 percent growth in GDP, more than double the national average. Manufacturing shipments were up 10 percent, the highest increase in Canada. This trend continued in 1997. Manufacturing shipments are running 18 percent higher than the same period last year, an increase well above the national average of 7 percent. Retail sales are also up almost ten percent year over year.

Our credit rating has, once again, been upgraded. When Standard and Poor's raised our rating this year, they cited the sharp decline in tax supported debt and our commitment to debt reduction as part of the reason. So with our fiscal house in order, it is time to shift our focus more clearly to the economy, taking the same balanced approach that we used in managing our fiscal situation.

Our balanced approach reflects our view that the role of government goes beyond "just getting out of the way" or "counting the dollars." But, at the same time, government cannot be all things to all people, an approach that leads along the dangerous road of mounting debt or mounting tax loads.

We will continue to produce balanced budgets--that is essential. But, our budget surpluses are being divided into roughly equal thirds:

• one-third to debt reduction
• one-third to reducing taxes
• one third to investing in people

It is our view that, without this balanced approach, you cannot really grow the economy. As governments, one of our responsibilities is to ensure that we are competitive.

A recent study by the KPMG company analyzed the costs of doing business in Saskatchewan, compared to competing centres in Canada and the United States.

For all 10 economic sectors examined, Saskatchewan's cities offer lower operating costs than competing cities in the United States. In fact, costs were 12 percent lower in Saskatchewan than in the United States, in part because in Saskatchewan the government pays the costs of health care while in the United States, the private sector pays for health-care premiums. Saskatchewan was also competitive with other Canadian jurisdictions. For instance, the cost of starting a business in Saskatchewan is 18 percent less than in Winnipeg and 29 percent less than in Calgary.

There are a number of factors that go into the mix on competitiveness. A major factor, however, is taxation. We have made a commitment to affordable tax reduction and we have acted on that commitment. We have used targeted tax reductions in key sectors of our economy such as manufacturing and processing and call centres so that, in these sectors, Saskatchewan is one of the least expensive jurisdictions in North America in which to do business.

We have also committed ourselves to making more broadly based tax reductions when they are affordable. In 1995 and 1996, we made modest income tax cuts. In 1997, we cut our provincial sales tax from 9 to 7 percent--a decrease of 22 percent--and it is now the second lowest in Canada. And we have seen growth in consumer confidence as a result.

Clearly, tax reduction is important but it must not be made at the expense of debt reduction. Paying down the debt is really an investment in the future since it provides the long-term fiscal stability that is so critical to long-term growth. Government's role is to preserve this.

And as we head into the new century, government must also invest strategically. By "strategically" I mean that, because government cannot be all things to all people, we must invest in areas like education and training that show the most promise for future opportunities. Across the country, we are facing the double-barreled challenge of a lack of trained workers in some sectors and continued high unemployment in others and we need continually to improve, to modify and to invest in education and training.

Saskatchewan has a training strategy in place that is designed to provide training that is more relevant to industry needs. It is not perfect but we are improving it through partnerships between business and our academic institutions. The skills need to match the jobs if we are going to grow; one of the first things that growth-oriented companies look at is the availability of skilled people.

A growing economy also requires solid infrastructure. In Canada generally and especially in Saskatchewan, where we rely so heavily upon trade, transportation is vital. We are investing $2.5 billion in our highways over the 10 ten years. We have also asked the federal government to develop a national transportation strategy; Canada is the only federal state in the western world in which there is no national highways program.

Sixty percent of Saskatchewan's gross domestic product is sold outside the province; sixty percent of that goes to international markets. One out of every 3 jobs in Saskatchewan depends upon trade. For this reason, in partnership with industry, we established the Saskatchewan Trade and Export Partnership, Canada's first partnership between industry and government to promote trade. Finding and expanding markets is critical to our growth in the next century.

Innovation is also important as it is essential to capturing and keeping markets. It is the key to becoming or remaining competitive and so, in today's competitive economy, government must build and sustain the capacity to innovate. Saskatchewan has made a significant investment in research and development, especially in areas like agricultural biotechnology.

We are now seeing what we think is just the tip of the iceberg when it comes to the return on this kind of investment. One-third of Canada's agricultural biotechnology industry is now located in Saskatchewan; we have attracted major global players to invest and locate in Saskatchewan. We created the world's first genetically engineered crop; the world's first genetically engineered animal vaccines. We are using the tools and products of innovation to help feed a hungry world; we are creating new and better crops for more productive farming, new and better uses for those crops to diversify our economy.

Just how far we have come is demonstrated in the selection of the University of Saskatchewan by an international peer review panel to be the site of Canada's only synchrotron, a sophisticated x-ray light source that can examine sub-atomic structures. It will give us the ability, for example, to produce frost-resistant crops more quickly and to speed up our search for cancer-fighting drugs. Its potential benefits to the biotechnology sector are enormous.

Strategic investment has certainly been the key to success in agricultural biotechnology and research and development. We take this same strategic approach in managing our finances and in our role in the economy overall.

So when you ask how we should we spend the fiscal dividend, our answer is that we should invest strategically to create the conditions for economic growth in the twenty-first century.

Economic growth is more than an end in itself. It is through economic growth that we can offer services that help create a high quality of life while keeping taxes at a reasonable level. In turn, those same services help us to grow, as our subsidized health-care costs make us more competitive than many American locations.

Balance is essential. Too great a focus on any one area creates distortion and over time the economy suffers, and society suffers. Maintaining the balance is a challenge for governments. But our future depends upon it, both as a province and as a nation. We already have a strong foundation. Canada has been ranked as the best place in the world to live. With the right approach, we can achieve a vibrant economy in which there are opportunities for all

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Last Modified: Wednesday, October 20, 1999.