Priorities for the 2021 B.C. Budget

With Finance Minister Selina Robinson poised to table the NDP government’s first post-election budget on April 19, what is the business community looking for? Before addressing this question, we should first acknowledge the unusual circumstances confronting the Minister and her government colleagues. Despite the arrival of vaccines, the province’s COVID nightmare drags on, with daily infections reaching a record high and more young adults falling victim to dangerous virus variants that are spreading among the population. While more British Columbians are getting vaccinated every day, the process has been slow compared to many other advanced economy jurisdictions, in part because of insufficient vaccine supplies. Unfortunately, current trends suggest the “COVID shock” will continue to have a significant impact on economic and social life in British Columbia through the spring and summer months.

Given that sobering backdrop, the forthcoming budget should continue to offer financial assistance to workers, businesses and non-profit organizations hammered by the virus and the measures taken to contain it. From the perspective of B.C. taxpayers, it’s important to note that the bulk of the fiscal costs stemming from the pandemic has been absorbed by the federal government. However, due to COVID, B.C. may report an operating deficit as high as $13 billion for 2020-21. The fiscal shortfall reflects both lower provincial government revenues and higher expenditures to help manage COVID-19. Another sizable (albeit smaller) provincial deficit is in store for 2021-22, as the disruptions caused by the pandemic persist. In terms of additional support for business, the province should focus on the hardest-hit industries, such as those in the broad tourism sector as well as hospitality, leisure and entertainment – where most businesses have faced severe restrictions for a year or more.While it would not be wise to rush to get back to the modest budgetary surpluses B.C. ran prior to 2020, the government cannot afford to toss fiscal caution to the wind. The Minister should present a plan to steadily shrink the annual deficit and return to a balanced operating budget over the medium-term. A key feature of this plan should be a commitment to keep a lid on the growth of the overall provincial debt measured as a share of GDP (i.e., the net debt/GDP ratio). This jumped by more than five percentage points – going from around 15% to almost 21% -- as B.C. grappled with the COVID shock over the last year. Looking forward, the government should aim to prevent further rises in the net debt/GDP ratio. Provided the economy rebounds and nominal GDP growth accelerates after the rare decline seen in 2020, it should be possible to avoid further material increases in the net debt/GDP ratio while moving toward a balanced budget and continuing to borrow to fund long-term capital and infrastructure investments.

We also recommend that the government steer clear of tax increases and new taxes in Budget 2021, beyond those already announced (e.g., the new tax on soda drinks and a $5/ton rise in the province’s carbon tax on April 1, 2021). The economy is still fragile, and some industries have suffered greatly from a painful combination of closed borders, the virtual collapse of travel, the end of in-person business meetings and events, and widespread social distancing. Now is not a time to be adding to the taxes and fees imposed on businesses and households.

Looking beyond the near-term, we believe the province should commit to retooling and improving current tax and regulatory policies that are out of alignment with the needs of a modern, export-dependent and increasingly digitally driven economy. The goal should be to make B.C. a preferred location for new investment, business growth, innovation, and the attraction/retention of talent. Coming out of the pandemic, many countries, provinces and states will be doubling down on efforts to re-boot investment, re-vitalize their economies, and attract productive private sector capital. British Columbia must do the same.Fixing the investment-inhibiting weaknesses in B.C.’s carbon pricing system is a particularly urgent task, as carbon prices in Canada climb steadily under the updated policy framework established by the federal government last year. BCBC research has shown that among jurisdictions globally with robust carbon pricing systems in place, B.C. provides the least financial and regulatory support to export-oriented industries.[1] That needs to change, soon, or else the province is at risk of growing de-industrialization in sectors that have been and remain foundational to our export economy.

Finally, the pandemic has magnified pre-existing shifts in the structure of work and the use of digital and other advanced process technologies in business. McKinsey researchers recently observed that “[a]s digitization, automation, and AI…reshape whole industries and every enterprise, the only way to realize the potential productivity dividends from that investment will be to have the people and processes in place to capture it.”[2] Across the economy, the demand for digital and other technological skills is increasing – and supply is falling short. With the pace of industrial change likely to accelerate in the wake of the pandemic and automation spreading rapidly, boosting the supply of in-demand skills and reskilling segments of the existing workforce will be essential. Tackling these challenges must become a central focus of the provincial government’s education and training policies and programs going forward.[1] Denise Mullen and Jock Finlayson, “B.C.’s Current Carbon Pricing System,” Environment and Energy Bulletin, Business Council of B.C., August 2019.[2] McKinsey and Company, “America 2021: Rebuilding lives and livelihoods after COVID-19,” February 2021.