B.C. Budget 2023 plans for sizable operating deficits and higher debt while doing little to strengthen the foundations of prosperity
Following our initial statement released on February 28, BCBC's Chief Economist, Ken Peacock provides an in-depth analysis of BC Budget 2023.The new Budget expands and builds on several years of substantial spending increases and delivers additional fiscal stimulus when the economy is already running hot. The Budget fails to embrace a balanced economic and fiscal policy agenda that fosters investment, supports innovation, and encourages the scaling up of businesses to strengthen the economy and lift real wages.
Key Takeaways
The provincial Budget assumes modest topline GDP growth of just 0.4% in 2023 and 1.5% in 2024. On a per capita basis, however, GDP growth is set to decline by 2.0% and 0.4% over the next two years.
Provincial revenues are projected to fall in 2023/24 as global growth moderates and commodity prices retreat from super-charged levels. Government expenditures, however, continue rising resulting in projected deficits over the three-year fiscal plan.
Last fiscal year the government benefited from a $14.1 billion upside revenue surprise, allowing the government to post a surplus instead of a large deficit while also boosting spending in fiscal 2022/23. Although the Budget anticipates a modest rise in spending, the plan follows the strongest three-year rise in provincial expenditures in three decades.
With the economy operating beyond capacity and overheating, the B.C. government has introduced a fiscally stimulative Budget that spends near-term windfall revenues and proposes an operating deficit of $4.2 billion (equal to 1.1% of GDP). We do not believe such stimulus is either warranted or wise in present circumstances. The Budget adds to unwanted inflationary pressures and thus pulls in the opposite direction to the Bank of Canada.
Budget 2023 announced the government’s plan to reform provincial carbon pricing. In addition to increasing the tax by $15/tonne, the government plans to move to adopt an output-based pricing system (OBPS) for large industrial operations in the province, which will likely be like the system previously implemented by the Government of Canada. Details are forthcoming but the Business Council expects the new system will exempt large industrial emitters from the carbon tax and they will instead be subject to a made-in-B.C. output-based pricing system.
Apart from the carbon tax, the Budget contained no measures directed at attracting investment or bolstering per capita economic growth.
