When tabling its budget, the B.C. government should learn from past success
As the old cliché goes, if you don’t learn from past mistakes you’re doomed to repeat them. But the opposite is also true—learning from the successes of the past can be as valuable. With its first full budget looming, British Columbia’s NDP government would do well to recognize what’s led to B.C.’s current enviable fiscal position.
B.C.’s government finances are in good shape, at least compared to other Canadian provinces. Last year (2016/17) B.C. was one of only three provinces to record a balanced operating budget. What’s more, B.C. is the only province to post four operating surpluses in a row.
Fewer deficits help keep the debt burden low, and B.C. has a low provincial government net debt burden compared to most other provinces. For example, B.C.’s provincial net debt amounts to $7,944 per person, much lower than Ontario ($21,584). (Only Alberta has lower per person provincial net debt than B.C., although that province is on track to surpass B.C. on this metric by 2019/20.)
But B.C. has not always enjoyed a positive fiscal standing within Confederation. In the 1990s, the province struggled with a string of uninterrupted operating deficits and was one of only two provinces (along with Nova Scotia) that did not balance its budget during the 1990s. B.C.’s turnaround did not happen by accident; it’s rooted in a decade-and-a-half of relative restraint in the growth of program spending (i.e. total spending minus interest paid on the debt).
Consider that from 2002/03 to 2016/17, B.C.’s program spending grew at an average annual rate of 3.5 per cent—the lowest annual growth rate of any other province over that period. The greatest growth over the period was in next-door Alberta (6.0 per cent).
Of course, Alberta experienced booming population growth over that period, but even after accounting for population growth and inflation, B.C.’s inflation- program spending growth rate (average of 0.9 per cent per year) was significantly lower than Alberta’s (1.3 per cent).
Compounded over time, this gap in the rate of spending growth has made a big difference, helping to ensure B.C.’s fiscal position remained solid while Alberta’s deteriorated. Indeed, Alberta’s lack of spending restraint has quickly turned the province from a leader in fiscal prudence to a growing concern for credit agencies, which have downgraded Alberta’s credit rating multiple times in recent years.
If B.C. had followed the same spending path as Alberta over the last decade-and-a-half, B.C. would be in much worst financial state. For instance, B.C. would have only posted an operating surplus twice from 2001/02 to 2016/17, instead of the nine times it actually did. Moreover, B.C. would have posted a $5.6 billion deficit last year instead of its actual $2.7 billion surplus.
The lesson here is that disciplined management of spending is critical for fiscal success.
Now, with a new government in power, B.C. is at a crossroads. It can continue its path of relative fiscal prudence or follow the lead of other provinces such as Alberta and Ontario, which are plagued by chronic fiscal shortfalls and ongoing budgetary challenges. Unfortunately, early signs from the NDP’s fiscal update in September 2017 do not bold well for continued spending restraint.
Just months after coming into office, Premier John Horgan and the NDP boosted the planned spending increase for 2017/18 to 6.6 per cent—a far cry from the 3.5 per cent annual spending growth over the past decade-and-a-half. Overall, the NDP added $4.4 billion in new spending over three years. And that doesn’t include big ticket spending items promised in the NDP election platform, such as $10-a-day subsidized daycare.
While the early signs may be discouraging, it’s still possible for the Horgan government to heed the lessons from history—B.C.’s relatively enviable fiscal position comes from a conscious effort to restrain program spending growth over an extended period. The upcoming budget will further reveal the NDP’s plans for the province.