The Saskatchewan Party government says the province expects to rake in an extra $1.2 billion in revenues than it budgeted for — but the news in its mid-year financial report isn't all good.

Finance Minister Rod Gantefoer says even though the revenue forecast is way up, operating expenses are, too.

The operating expense for 2007-2008 is now forecast to be $8.04 billion, up about $247 million from the budget.

In fact, the operating expense for the current fiscal year is 30 per cent higher than it was three years ago, Gantefoer said.

Gantefoer released projections that show the province would eventually run a $4 billion deficit over four years, unless spending is reduced.

He says that's because the previous NDP government's plan was based on one-time windfall revenues from the federal government and a booming petroleum industry.

According to the Saskatchewan Party government, spending commitments are projected to keep growing, while there's no guarantee revenues will keep pace.

Despite saying the situation is "serious," Premier Brad Wall said it's manageable and the government won't back away from campaign spending promises.

Also in the mid-year update:

• The province is running a surplus of about $527 million. The plan is to put half into the province's "rainy day" fund and the other half towards debt reduction.
• Tax revenue is forecast to be $408 million above what was budgeted in the spring.
• Revenue from oil, gas and other non-renewable resources is expected to be $430 million above budgeted levels.
• Federal transfers, including $226 million in equalization payments, are forecast to be $349 million above budget.
• Extra money from the Crown corporations and other government agencies is expected to total $51 million more than what was projected in the spring.

The government is basing its forecasts on the price of oil being $80 US a barrel and the Canadian dollar being worth about 97 cents US.