Sask. budget trims ag spending slightly

A substantial drop in provincial resource revenue from its oil sector has Saskatchewan holding the line on spending and leaning on its potash sector in its 2015 budget.

Finance Minister Ken Krawetz and Ag Minister Lyle Stewart on Wednesday announced a total ag ministry budget of $362.4 million for 2015-16, down 2.5 per cent from the previous year.

The reduction comes mainly from an “above average” amount of strategic initiative spending carried over from the first year of the federal/provincial Growing Forward (GF2) ag policy funding framework agreement — carryover that’s “not required” for 2015-16, the province said.

Cuts with bearing on the ag sector include changes to the provincial Research and Development (R+D) Tax Credit, available to corporations with a permanent establishment in Saskatchewan and investing in qualifying R+D work in the province.

The tax credit could previously be issued as a refund and has been applied at a rate of 15 cent of the value of qualifying expenditures. Effective April 1, however the tax credit is cut to 10 per cent and is being made non-refundable, meaning it must be applied against Saskatchewan corporate income taxes otherwise payable.

Farming corporations that pay into some research checkoffs and don’t seek refunds have been able to claim the provincial R+D tax credit on a portion of those checkoffs.

In the 2014 tax year, for example, portions of the levies paid by farming corporations to SaskCanola and Saskatchewan Pulse Growers are eligible for provincial as well as federal R+D tax credits.

“Changing the rules midstream”

The province forecasts its 2015-16 oil revenue at $903 million, down $661 million from the previous year’s expected revenue in its 2014-15 budget, while its potash revenue for 2015-16 is forecast at $796 million in 2015-16, up $399 million from the 2014-15 budget’s forecast for that year.

Retroactive to Jan. 1, the province has temporarily restructured the profit tax portion of its Crown royalty structure for potash, so all potash mining firms’ capital investments will be allowed to accrue at a 120 per cent rate.

However, those investments will now be deductible from annual gross sales revenues at a 20 per cent declining balance rate for mine operation and maintenance expenditures, and at a 60 per cent declining balance rate for investments in mine expansion or new mine development.

This way, the province said, the government gets an “immediate temporary increase in revenue” by deferring deductions for current capital spending to future years, and the total deductions potash producers get from their capital spending will play out over a longer time period.

Krawetz on Wednesday described the move as “an interim step that will be followed by a review of the entire potash royalty and taxation regime.”

Saskatoon-based PotashCorp, meanwhile, said Wednesday it expects the province’s “changing (of) the rules midstream” to bite into its pre-tax 2015 earnings by $75 million to $100 million.

Describing the company as “disappointed” in the province’s announcement, PotashCorp CEO Jochen Tilk said it “understand(s) the difficult revenue situation facing the government (but is) nearing completion of a $6 billion investment in Saskatchewan which was based on the existing tax structure remaining in place.

On the province’s planned review of the potash royalty structure, Tilk said PotashCorp plans to focus on making sure any changes “continue providing benefits to the people of Saskatchewan, while also protecting the competitiveness of the industry and the long-term interests of our investors, employees and customers.” — AGCanada.com Network