B.C. Budget Lacks Focus on Fiscal Discipline and Prosperity

February 22, 2024 (Victoria, B.C.) – The Business Council of British Columbia (BCBC) has reviewed the 2024 B.C. Budget and found that, while there are some commendable measures, the overall budget lacks sufficient focus on fiscal discipline and policies to get provincial prosperity growing again.   

Today’s B.C. budget projects a nearly $8 billion deficit this fiscal year and serially large deficits over the forecast horizon. In October, the Bank of Canada Governor indicated that monetary and fiscal policy should be “rowing in the same direction” to cool inflation that is hurting family budgets. At 1.9 per cent of GDP, this year’s deficit is significantly larger than last years which was the largest among the provinces and second only to the federal government. This budget continues an unhelpful pace of spending and borrowing that is stimulative despite B.C.’s inflation rate being 3.0% year-over-year in January. 

“We do not agree the government should be running large operating deficits when the economy is near full capacity and people are struggling to pay the bills because of inflation,” says Ken Peacock, BCBC’s Chief Economist.  

Debt Servicing  

The government’s capital spending jumps by $4 billion to $14 billion in 2024/25. Repeated cost overruns on capital projects are something to watch. Taxpayer-supported debt as a share of GDP rises to 21.0 per cent in 2024/25 and 27.5 by 2026/27 – almost double what it was in 2018/19. The province will spend $4.1 billion on debt servicing in 2024/25, representing 4.6 per cent of expenses. This is roughly equivalent to the child welfare budget or about half the school education budget. 

Debt servicing costs could become a constraint on service provision as they climb to 6.1 per cent of expenses by 2026/27. BCBC would like to see the government set – and stick to – a fiscal anchor such as balancing the budget over three years or keeping debt servicing costs to no more than 3-4 per cent of expenses. 

Economic Outlook 

The economic outlook is sobering. Population growth is keeping topline economic growth positive. However, looking through the veneer of population growth, B.C.’s GDP per capita is projected to fall by 2 per cent in both 2024 and 2025, meaning the economic pie is shrinking. By 2028, GDP per capita is projected to be $931 lower than in 2022. 

There has been almost no private sector job growth in B.C. since 2019. Major capital projects are winding down and, with a few exceptions, business investment is broadly weak. It is not sustainable for B.C. to rely on expanding public sector employment to keep total job growth positive.  

Positive Aspects 

The budget implicitly acknowledges the weakness in B.C.’s private sector in delivering some relief for smaller businesses by raising the payroll exemption threshold for the Employer Health Tax (EHT) from $500,000 to $1 million. This reduces business payroll taxes by $100m. Although the overall budget will contribute to inflation, there are some spending measures intended to partially offset cost of living pressures, including $370 million in electricity bill rebates. There are also some commendable enhancements to B.C.’s social safety net such as the expansion of legal aid support for people fleeing family violence and trauma to help them stabilize their legal situation.  

Debt Rating 

Overall, B.C.’s fiscal situation and debt loads seem manageable, at least in the short run, but serially large deficits, hefty borrowing and debt servicing costs, and falling per capita incomes are cause for concern. S&P Global downgraded the province’s debt rating from AA+ to AA after last year’s budget. Future downgrades by ratings agencies could spell higher costs for taxpayers in servicing the government’s debt.  

"While there are some positive measures in today’s budget, we are concerned that real per capita incomes are falling and would like to see greater focus on policies to get the economic pie growing again,” says Laura Jones, BCBC President and CEO.