Lines in the sand: Saskatchewan's budget is about leading, not reacting.

The Wall administration's first budget of its second term has taken this government into new territory that could very well be a bellwether of the challenges facing the public sector for years to come.

In its first four years, budget time for the Saskatchewan Party was about managing finances - one year with revenues vastly exceeding expectations followed by a year with royalty income dropping off a cliff That term was about managing, reacting to events largely beyond the government's control.

The second term has started out completely differently. It might be about leading rather than reacting.

Fresh from a renewed and enhanced mandate, Wall and his finance minister set out to mark their turf. Despite some of the messages seeming contradictory - opposing tax credits for the film industry while introducing them for the residential construction sector, nationalizing tourism but not trade promotion - the government seemed interested in acting with a purpose. It canned enterprise regions, a tough move given that they were created by this government. It also pulled the pin on support for the horse racing business. But there appears to have been a message buried in all that news, something about the commercial sector standing on its own. Except for the part involving the tourism sector.

On the construction bit, the new tax credit amounted to a balancing of the playing field. The tax code penalizes anyone who invests in 'passive' investments such as buying Canada Savings Bonds. According to the tax act, deposits amount to 'renting' money to a borrower so they should attract the highest possible tax rate. In an environment of negligible or non-existent vacancy rates, the idea of penalizing investors who 'rent' properties seems out of step with reality. But the tax act is a federal responsibility, beyond the provincial purview. So the only action available to a provincial administration interested in turning rental income into regular business income was to introduce a tax credit. So maybe it isn't as contradictory as it might seem at first blush.

Setting the new tax credit for construction of multi-family residential developments aside, the budget appears to have been a message to the government's traditional supporters - business - that public service demands now outweigh the needs or demands of the commercial community.

Spending in this budget was up. Rising nearly five per cent over last year, expenditures significantly outpaced the rate of inflation which would appear to fly in the face of an obsession with restraint. Despite the rapid rise, though, the government managed to balance its books, a rarity in the western world these days. Whether it is compared to the US, Canada, Europe or virtually every other province, Saskatchewan stands in ranified air with a government boasting a budgetary surplus.

And maybe that's the backstory here. Governments of the First World are simply running out of fiscal capacity to meet social demands that know no upper boundary.

Perhaps it is simple demographics. The baby boomers, the largest cohort in the population, enjoyed a charmed existence, demanding excessive spending on social programs that resulted in deficits for future generations to resolve. But now the chickens may have come home to roost.

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Governments everywhere - from Athens to Washington - find themselves in a structural bind that is draining the public sector's ability to make ends meet.

Consequently Europe has had a draconian solution imposed on many of its member states. Washington is locked in a perpetual debate over the sustainability of social programs while even Ottawa has started on the road to reform with a decision to lift the Old Age Security age to 67 as well as cuts to the civil service.

Could Saskatchewan's budget with its targeted cuts to the so-called 'hard' side of the public sector be nothing more than another step on the inevitable road to smaller government?

For now, Saskatchewan with its resource wealth, unlike any other government in the western world, apparently has the ability to sustain social program spending growth. But, even with the financial blessings bestowed on Saskatchewan right now, that is only possible because of spending cuts.

Indeed, the writing may be on the wall for the traditional public sector programs that a generation or two has grown accustomed to.

Paul Martin is heard daily on News Talk 650 and News Talk 980 as well as on the radio stations of the Golden West Broadcasting network in Saskatchewan.

Paul Martin Associate Editor