Saskatchewan Premier Brad Wall admits the province's finances are challenged, but pledged the government won't go into debt to cover operating expenses. The 2010 budget is due later this month. (Troy Fleece/Canadian Press)Premier Brad Wall says Saskatchewan — the province that initially defied the economic downturn — must now make tough decisions to balance its budget.

Wall told about 500 delegates at the Saskatchewan Party's annual convention Saturday that the government is facing a challenge because of plummeting potash revenue. The drop is so bad that the province has to pay back hundred of millions of dollars it collected from potash producers who overpaid royalties.

"We will face this challenge head on and we will make the right decisions. The next budget, this budget upcoming, will not be about potash for this year or next year or the year after that. It's going to be about the future," said Wall.

"It'll be about getting government spending under control, reducing the size of government."

Even with those measures, the premier said it's likely the government will have to dip into its rainy-day savings account to balance its books. There's about $705 million in the account called the Growth and Financial Security Fund. It should maintain a balance of about half a billion dollars, "give or take," Wall later told reporters.

The premier said the spring budget talk everywhere else in Canada is about structural deficits and about debt increasing to cover operating expenses. Saskatchewan won't go that route, he insisted.

"On the 24th of March, the talk will be about Saskatchewan doing something different. The talk will be about the government holding to its goal of a zero per cent increase in expenditure and challenging and encouraging our public service to provide innovative solutions so we can do more with less."

Wall has said that the zero per cent increase overall still includes a three per cent hike in health spending — which means other ministries will face cuts.

Potash woes

Saskatchewan needs to tighten its belt because potash left a big hole in provincial coffers. The pink mineral used in fertilizer was expected to bring in $1.9 billion, but the third-quarter financial report released Tuesday said the province won't make any money on potash in 2009-10 and is actually in the red by $203.9 million.

The drop was driven by farmers around the world who balked at paying high prices for fertilizers during the recession. Sales fell to levels not seen since 1972.

But during his 40-minute long speech to party faithful, Wall tried to paint a rosier picture.

He took cheerful political jabs at the Opposition New Democrats and their leader, Dwain Lingenfelter. He talked about job growth and population increases in Saskatchewan.

He also predicted the province could leap past Alberta as the No. 1 producer of conventional oil.

According to figures provided by the Saskatchewan government, Alberta is at 160 million barrels of conventional oil production and falling. Saskatchewan's conventional production is more than 150 million barrels and rising.

Wall said there will be setbacks, but he is confident.

"With hard work, with the right choices, not always the easy choices, we'll be more than just fine — we will continue to lead the nation."