B.C. government faces clear choice in upcoming budget
The Eby government will table its first budget on Feb. 28. Despite budget surpluses in 2021 and 2022, the government must still make tough decisions and control spending to ensure surpluses continue in the years ahead and provincial finances are sustainable.
First, a bit of background.
From 1999 to 2016, British Columbia was one of the most fiscally responsible provinces in Canada. The province’s per-person spending (inflation-adjusted) increased by just 8.4 per cent over this timeframe compared to 66.1 per cent in Alberta and 35.0 per cent in the rest of Canada.
This period of spending restraint markedly improved provincial finances. B.C. ran operating surpluses more often than not and provincial debt declined (relative to the size of the economy) from 18.4 per cent in 1999/00 to 14.4 per cent in 2016/17.
But after the 2017 election, things changed. Government spending ballooned, growing by an annual average rate of 4.7 per cent compared to less than 1 per cent during the prior two decades. Consequently, after six consecutive years of surpluses, the government ran operating deficits in 2019 and 2020.
But the operating deficits only tell part of the story. Unlike some other jurisdictions, B.C. separates annual spending (the operating budget) from long-term capital spending on items such as new schools and highways. After accounting for capital expenses, provincial debt (inflation-adjusted) has increased by more than $11 billion since 2016/17 to reach $56.4 billion (or $10,601 for every British Columbian).
And of course, British Columbians pay interest on government debt already accumulated and will also pay interest on any new debt the government adds. With rising interest rates, this means debt will become more expensive to service in years ahead. The government expects to spend $2.7 billion on debt interest this year alone—or approximately $512 per British Columbian. That’s money unavailable for health care and education.
Finally, because the debt itself must be repaid at some point by future generations of British Columbians, taxes must eventually increase or future spending must decrease.
This is especially concerning because B.C. is in desperate need of tax relief. The province has uncompetitive personal income tax rates relative to neighbouring jurisdictions and struggles to attract business investment due to the design of its provincial sales tax (PST).
The Eby government controls the fate of provincial finances and can spring into action in its upcoming budget to reduce debt and ensure B.C.’s finances are sustainable for future generations. But it must avoid the temptation to repeat past mistakes through excessive spending increases that are simply not sustainable. Restraining government spending and running consistent operating surpluses are the keys to success for B.C. and British Columbians today and in the future.
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