B.C.'s declining finances are painting a grim picture for the future if spending and borrowing guides are not exercised.
That’s according to a Tuesday report from the Business Council of British Columbia (BCBC), urging the provincial government to take measures and put a stop to high deficits, increasing debt and credit rating downgrades.
These include either returning to a balanced budget, returning debt to no more than 20 per cent of the GDP, or reducing debt servicing costs to no more than three to four per cent of expenses.
Unless economic growth improves, this situation could lead to significant tax increases and a reduction in spending to stabilize the economy, according to the report.
In February, the provincial government projected a $7.9-billion operating deficit in fiscal 2024-25 – the largest in B.C. history.
However, the first quarterly report issued on Sept. 10 now shows a projected deficit of $8.9 billion for the same time period – reflecting increased spending, says the B.C.'s Deteriorating Fiscal Position: Cause for Concern report.
The projected deficit represents 2.1 per cent of the GDP, greater than the 2020-21 period during the pandemic, where the deficit sat at 1.8 per cent of the GDP.
This is the largest deficit among all provinces for the 2024-25 period, followed by Quebec at 1.5 per cent and the Canadian average at 1.3 per cent.
The unemployment rate for 2020-21 was 13.3 per cent compared to six per cent today.
B.C. capital expenditures are twice what they were two years ago – sitting at $14 billion. This increase in spending and a high deficit is projected to raise the debt to $63 billion. This raises the debt as a share of GDP to 22 per cent in 2024-25, and at this rate, debt is expected to reach 28.8 per cent of the GDP by 2026-27 –costing $600 per British Columbian annually.
Around $4.4 billion, or 4.8 per cent of expenses, will now be spent on debt servicing in 2024-25.
“This is roughly equivalent to the child welfare budget or about half the K-12 school education budget. It is more than is spent on protection of persons and property,” says the report.
As a consequence, B.C.'s credit rating was downgraded in April by rating agencies S&P Global and Moody's.
S&P Global has downgraded the province's credit rating three times in the last three years, now labelling the provincial government's bonds as "AA-" with a negative outlook.
Professor Trevor Tombe from the University of Calgary was quoted in the report, describing B.C.'s fiscal future as bleak.
"I estimate revenue must increase or expenditures must decrease by 4.8 percent of GDP immediately and permanently," Tombe said in the report. "That’s enormous. Imagine raising the provincial sales tax from seven percent to 22 percent."
The report shows British Columbia and Quebec as having the slowest productivity growth in the next 75 years, with the BCBC saying it hopes the province will adopt one of their proposed measures to address the economic situation.
