Budgets for Canada and B.C.: Big spending, persistent deficits and rising government debt
Highlights
A strong economic rebound in 2021 and 2022 underpins both the federal and B.C. budgets. The federal budget assumes Canadian real GDP will grow by 5.8% in 2021 and 4% in 2022. The B.C. budget projects the provincial economy will grow by 4.9% this year and 4.3% in 2022. The more conservative projections for B.C. are part of several steps that indicate a high degree of budgetary prudence in the face of uncertainty.
The federal deficit in 2021/22 is projected to be nearly $155 billion, which is still a sizeable 6.4% of GDP. The provincial deficit in 2021/22 is estimated to be $9.7 billion, which is 3.1% GDP. Neither budget provides a long term plan to return to balance. Both budgets contain plentiful and wide-ranging spending increases aimed at temporary pandemic related supports but also new non-temporary spending initiatives. Neither budget contains broad or substantial tax increases.
The federal budget’s highest profile initiative is the National Early Learning and Child Care Plan based on the Quebec child care model. If implemented, the government expects it will boost Canadian real GDP by 0.05% per annum over the next two decades. The federal government commits $30 billion over five years and $8.3 billion annually thereafter to the plan. The provinces are to administer the program and match federal funding on 50/50 basis.
Both budgets feature active industrial policy around promoting innovation and the growth of technology-producing companies. The federal budget is spending billions more to support the life sciences and bio-manufacturing industry, clean technologies, the development of electric vehicles, the aerospace sector, quantum computing, AI, genomics, and digital technologies, among others. B.C.’s budget also provides funding for innovation, the technology sector and locally-based companies. The new InBC Investment Corporation, first announced last summer, will be endowed with $500 million to invest in growing and “anchoring” high-growth B.C. businesses.
Both budgets also feature new spending towards a low-carbon future. The federal budget adds $17.6 billion in various spending measures to the $15 billion announced last year and the $14 billion promised for public transit in February 2021. The B.C. budget allocates another $506 million over three years for further initiatives under its CleanBC plan.
Unfortunately, the province has done almost nothing to address mounting concerns that B.C.’s current carbon pricing system puts our exporting industries at a competitive disadvantage because of the province’s failure to mitigate the negative financial impact of the escalating carbon price on trade-exposed sectors. The Business Council’s biggest disappointment is there is nothing that begins to address this failure in the provincial budget.