As one of the few provinces to table a balanced budget this year, Saskatchewan would seem to be in an enviable position, having access to billions of dollars in resources revenue. Many provincial finance ministers would love to have Saskatchewan Finance Minister Ken Krawetz’s ability to draw on royalties from oil and gas, potash and uranium.

But a recent study shows that having access to billions of dollars in resources revenue – far from making budgeting easier – paradoxically makes budgeting harder.

First of all, resources revenue, like commodity prices, isn’t easy to predict. Last year, Krawetz tabled a balanced budget and had $95 million left over to top up his rainy-day fund – the Growth and Financial Security Fund (GFSF).

Unfortunately, oil and potash revenue fell well short of his forecast – by $563 million, to be exact – causing Krawetz to take $46 million out of the GFSF and raid the province’s Crown corporations for another $120 million in dividends just to balance the books in fiscal 2012-13.

This year, of course, resources revenue is forecasted to recover. Potash revenue is expected to be 30% higher than last year. Oil revenue, which came in at $1.3 billion in 2012-13 instead of the budget forecast of $1.6 billion, is projected to rebound to $1.4 billion in fiscal 2013-14.

Obviously, predicting resources revenue is a mug’s game. That’s why Saskatchewan is always missing its revenue projections.

In fact, according to the C.D. Howe Institute, the Toronto-based think-tank, Saskatchewan was the least accurate among the provinces in forecasting revenue over the past 10 years, with an average error rate of 10.3%, resulting in a $8.3 billion more in revenue than anticipated.

Having an extra $8 billion in unbudgeted revenue is a nice problem to have. After all, you can’t have too much of a good thing, right?

Well, yes, you can. The C.D. Howe Institute study also shows that revenue drives spending, and provinces that see dramatic changes in resources revenue are likely to see dramatic increases in spending.

That’s why Saskatchewan also boasted the largest cumulative overspending during the 2002-03 to 2011-12 period: it was 38% over budget, or $4.2 billion. That dubious distinction caused Saskatchewan to be the winner of the C.D. Howe Institute’s Pinocchio Award for having the largest unbudgeted overspending, in percentage terms, over the past 10 years.

But the problem is more complex. As the Canada West Foundation pointed out recently, Saskatchewan is too dependent on resources revenue for day-to-day operations: “Saskatchewan [should] begin to set aside some share of its non-renewable resources revenue so that future generations can also benefit from the sale of the province’s assets. Doing so has the added benefit of helping [to] insulate Saskatchewan against the short-term volatility characteristic of resources-based revenue.”

Last year, the province promised to look at setting up a heritage fund to save a percentage of resources revenue for future generations, but only after the public debt is paid off. That could be a decade or more. Even Pinocchio didn’t have to wait that long for his wish to come true.

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