FIRST QUARTER REPORT MAINTAINS BUDGET SURPLUS DESPITE FEDERAL CHALLENGES

Saskatchewan's 2003-04 First Quarter Report reveals strong resource revenue, as well as challenges due to a projected reduction in federal transfer payments.

Overall, provincial own-source revenue is forecast up $171.4 million from Budget, federal transfers are forecast down $198.6 million and provincial operating spending is forecast up $22.0 million. A corresponding increase in the transfer from the Fiscal Stabilization Fund (FSF) maintains the surplus at $0.1 million. The FSF transfer to the General Revenue Fund increased by $49.2 million, up from the Budget estimate of $392.7 million to $441.9 million.

The nearly $200 million reduction in federal transfer payments from the Government of Canada is mainly attributable to an Equalization offset to higher-than-expected own-source revenues, and a preliminary adjustment for 2001 Census population numbers. Population is an important component in determining federal transfers, and small changes can have significant impacts. The final adjusted Census numbers will be released in the fall of 2003.

"The census-related population adjustment is expected to result in a substantial hit for Saskatchewan, as it is for other provinces," Finance Minister Jim Melenchuk said. "In the meantime, Ottawa could put $1 billion back into its own pockets – that's simply unacceptable.

"The majority of Canadian provinces rely on federal transfer payments to finance key public services like heath care, and the unpredictable nature of these payments creates a significant financial challenge for Saskatchewan. The federal government must improve this program."

Currently, provincial governments are lobbying the federal government to recognize the destabilizing effect of fiscal shocks and provide some adjustment mechanism to cushion the census impacts.

Melenchuk noted that in light of the current challenges, the Government's decision to create the Fiscal Stabilization Fund in 2000-01 was a sound one.

"We're using the Fund for its intended purpose: to help us manage our finances during difficult times. In this case, we needed that transfer to offset this projected significant decline in federal transfer payments to Saskatchewan."

Melenchuk noted the province experienced strong numbers in oil and gas revenue in the first quarter.

"The oil and gas industry continues to perform well and provides a generous boost to the Province's overall financial picture," Melenchuk said. Oil revenues are up $90.8 million due to higher than anticipated world prices and natural gas revenues are also up by $84.2 million as a result of higher prices and a 10 per cent increase in production levels. At the same time, foreign exchange rates and lower production levels have reduced potash revenue by $18.9 million.

The First Quarter Report also revealed Government spending in nearly all departments is on-target with Budget. An exception is $22 million in additional funding required by Saskatchewan Environment for forest fire management costs.

In addition, the Report announces that Government will be moving toward amortization of government-owned assets for the 2004-05 Budget. This change is in keeping with the Public Sector Accounting Board (PSAB) recommendations that all governments adopt this policy.

"While the First Quarter Report identifies some challenges – namely with reduced federal transfers – it is important to note we are still early in the fiscal year. We continue to manage the Province's finances well, being mindful of addressing public priorities at the same time as exercising financial prudence," Melenchuk said.

The First Quarter Report can be found at www.gov.sk.ca/finance under the "Publications" tab.

-30-

For More Information, Contact:

Mike Woods Finance Regina Phone: (306)787-6578