March 4, 2011 / 6:00 PM / 7 years ago

Saskatchewan surplus shrinks as health costs rise

WINNIPEG, Manitoba (Reuters) - Saskatchewan said on Friday it expects to post a smaller budget surplus for the current fiscal year than it had forecast due to rising costs for health care and other services.

Saskatchewan’s slight surplus contrasts sharply with hefty budget deficits in most provinces following the recession. The province’s oil-rich neighbor Alberta said last week that its current fiscal-year deficit would be C$4.8 billion ($4.9 billion).

Saskatchewan is the world’s top producer of potash, a key fertilizer ingredient, and is highly dependent on royalties paid to it for mining the nutrient.

Last year, the provincial government successfully lobbied Ottawa to block the sale of Saskatchewan-based Potash Corp, the world’s biggest fertilizer producer, to Australian mining giant BHP Billiton due to fears the takeover would cost it billions of dollars in lost revenue.

Saskatchewan is also abundant in oil and uranium, and produces more wheat and canola than any other province.

The government said in a third-quarter update that it now expects to post a slim surplus of C$40 million ($41.2 million) on its C$10.9-billion budget for 2010-11.

After shifting half of that amount to a savings account, the surplus would be C$20 million.

At mid-year, Saskatchewan forecast a C$137 million surplus before putting half of it in a reserve.

The government said its expenses were up by C$408.4 million from its mid-year forecast due to rising costs for health care and other services.

Revenues were up C$311.4 million from the last update due to bigger contributions from taxes and from potash and oil royalties.

Surging crude oil prices alone will increase royalties by C$89.1 million from the mid-year forecast, the government said. Potash royalties are seen up by C$43.9 million.

Saskatchewan sees potash sales rising 9 percent from its mid-year forecast.

It forecast that government debt will stay at $4.1 billion when the fiscal year ends on March 31.

($1=$0.97 Canadian)

Reporting by Rod Nickel; editing by Peter Galloway

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