U.S. Tariffs Likely to Deepen B.C.'s Fiscal Hole
More Action Needed to Grow the Economy
March 4, 2025 (Victoria, B.C.)- The Business Council of British Columbia (BCBC) is concerned about the ongoing deterioration in B.C.’s public finances, the absence of a credible path to restore fiscal sustainability, and a missed opportunity to improve conditions for private-sector investment and hiring.
“B.C. is in a deep fiscal hole – and one that is likely to get deeper,” said David Williams, BCBC’s Vice President of Policy. “Record deficits were already a concern, but once the full impact of U.S. tariffs is accounted for, the province’s financial outlook worsens significantly.”
BCBC recently released a ten-point blueprint outlining key policy priorities to strengthen the economy and address challenges posed by tariffs. These include restoring fiscal sustainability and tax competitiveness, growing the economy while reducing global emissions, and encouraging an open-for-business mentality.
“While we appreciate the Premier’s commitment to fast-tracking approvals for specific projects, this budget missed an opportunity to improve conditions for private-sector investment and hiring in the face of the Trump administration’s threat to B.C.’s industrial base,” said Jairo Yunis, BCBC’s Director of Policy.
“Now that U.S. tariffs are going ahead, we will be looking to the government to quickly follow up with bold action to improve our competitiveness and strengthen our economy.”
Budget Balance
Even before accounting for the impact of U.S. tariffs, B.C.’s projected operating deficit for 2025/26 is a record $10.9 billion, or 2.5 per cent of GDP. This marks a stark deterioration from the $6.7 billion deficit projected in September’s First Quarterly Report. Over the following years, the deficit remains around $10 billion, or more than 2 per cent of GDP, through 2028/29.
For context, during the height of the COVID-19 pandemic in 2020/21, when the economy was largely shut down, B.C.’s budget deficit was $5.6 billion, or 1.8 per cent of GDP.
Operating spending grows by 3.2 per cent in 2025/26 – more than twice the pace of revenue growth – before moderating to 1.1 per cent in 2026/27 and 2.2 per cent in 2027/28. The budget includes $4 billion annually for contingencies and provides additional support for public services like healthcare, education, and social assistance, alongside a broader commitment to review program spending and find savings over time. Measures to address community safety will also be welcomed by B.C. businesses.
Revenues grow at only 1.4 per cent in 2025/26, increasing to 2 per cent in 2026/27 and 2.9 per cent in 2027/28.
Notably, the government expects the yearly budget balance to deteriorate by a further $1.4 billion once U.S. tariff impacts are fully incorporated. In addition, it has committed to eliminating B.C.’s consumer carbon tax if the federal carbon tax is removed, which seems likely. This would result in a further revenue loss of around $3-4 billion. Taken together, the full impact of U.S. tariffs and the loss of carbon tax revenue could push the 2025/26 budget deficit to $15.3 billion.
Capital Plan
Taxpayer-supported capital spending remains high, at around $15-16 billion annually over the forecast horizon.
Debt and Debt Servicing Costs
Total provincial debt rises from $157 billion this fiscal year to $209 billion by 2027/28 – more than double the level in 2022/23.
Taxpayer-supported debt as a share of GDP is expected to rise to 26.7 per cent in 2025/26 and 34.4 per cent by 2027/28. On a per capita basis, taxpayer-supported debt will reach $29,000 in 2027/28, compared to just $11,000 in 2022/23—a 160 per cent increase.
The province will spend $5 billion on debt servicing this fiscal year, an increase of $700 million from the previous year, representing 6 cents of every dollar of revenue. Notably, the province will spend $500 million more on debt servicing than on child welfare.
Economic Outlook
In the base case, B.C.’s economic growth was expected to improve from 1.2 per cent in 2024 to 1.8 per cent in 2025 and 1.9 per cent in 2026—still well below B.C.’s average GDP growth of approximately 2.5 per cent from 2000-2019. The base case assumes heightened uncertainty from the threat of U.S. tariffs but does not account for their actual imposition.
Once the full impact of U.S. tariffs is incorporated, along with retaliatory tariffs by Canada and economic support from Canadian monetary and fiscal policy, provincial GDP growth for 2025 drops to only 0.3 per cent. The government estimates the cumulative GDP loss caused by U.S. tariffs over 2025-2029 will be $43 billion, alongside job losses of 45,000.
No Fiscal Anchor
Although the budget offers some aspirational commentary about returning to a balanced budget over time and flattening out the debt-to-GDP ratio, there is little in the projections to support this. In fact, the province’s debt-to-GDP ratio steepens markedly even in the base case before incorporating the full impact of U.S. tariffs.
Debt Rating
As recently as 2021, B.C. had a AAA credit rating from S&P Global. S&P Global downgraded B.C.’s credit rating from AA to AA- after last year’s budget—the third such downgrade in three years—with a negative rating outlook. Moody’s similarly shifted B.C.’s rating outlook to negative.
This year’s budget sees record operating deficits, high capital spending, and steeply rising indebtedness—even before fully incorporating the impact of U.S. tariffs. These developments could see B.C.’s credit rating further downgraded in the months ahead.
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