Business Brief: B.C’s financial reckoning

Good morning. The future of one Western province has become, for now, a little more certain. The spotlight turns next to the path British Columbia will choose in a high-stakes election this weekend. In focus today, we look at the fiscal reckoning that awaits the winner.

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In focus

How B.C.’s picture became so cloudy

Regardless of which party comes out on top in this weekend’s election, the next government faces the grinding task of putting the province’s troubled fiscal house back in order.

Over the last four years, under Premier David Eby’s New Democratic Party, the B.C. government has swung from a small surplus to a deep and prolonged deficit outlook. As of the latest quarterly fiscal update released in September, the province’s deficit was expected to hit $13.8-billion this fiscal year, or 2.9 per cent of GDP – the largest budget shortfall since at least 1991.

Yet, despite a backdrop of rising deficits, a mounting debt load and tumbling credit ratings, neither of the main parties in the Oct. 24 race – the NDP and Lorne Doerkson’s Conservative Party of BC – has provided a clear path back to fiscal stability in the near or even medium term.

At the same time, the headwinds facing the B.C. economy, from slower immigration numbers to U.S. President Donald Trump’s tariffs, are adding to private-sector anxiety about the province’s finances.

That unease could perpetuate slow economic growth in B.C., while concerns about the province’s deficits could limit how much the government can spend to give the economy a boost.

No path back to balance from either major party. Both the NDP and Conservative parties have now released costed platforms and neither goes very far in bringing B.C.’s budget back to balance.

The NDP’s plan shows the deficit falling from roughly $13.8-billion this fiscal year (after adjusting for the government’s pause to its planned expansion of provincial sales taxes on professional services) to $11.97-billion in fiscal 2028-29.

To achieve even that modest reduction, the party’s plan relies on a tax increase on high-income earners and up to $730-million a year of new revenue from “targeted economic growth” tied to major projects. However, planned new spending would absorb most of the new revenue.

The Conservatives said their plan will bring B.C.’s annual deficit down to $10.8-billion by 2029-30, though that would still be more than twice the province’s 2023-24 shortfall. To reach its target, the party said it would reduce the province’s contingency reserve fund, enact a hiring freeze, review spending at most ministries and cut outside consultants. The plan bakes in $2.6-billion of extra revenue from faster growth over three years, but tax cuts of about $3.4-billion a year would offset most of those measures.

B.C.’s debt picture has eroded faster than other large provinces. Four years of growing deficits have piled up and caused the province’s debt load to balloon. Taxpayer-supported debt is set to more than triple to $187-billion in 2028-29, as compared to when Eby took office in the 2022-23 fiscal year. That pace of debt growth far outstrips Ontario, Quebec and Alberta. B.C.’s net debt relative to gross domestic product, which measures total liabilities less financial assets as a share of the economy, has soared to a projected 27.4 per cent for this fiscal year from 17.2 per cent three years ago.

Nearly 10 cents of every dollar that B.C. collects will soon go to debt payments. As recently as fiscal 2022-23, the province had the lowest debt charges relative to its revenues among the four largest provinces, but an explosion of debt has rapidly redrawn that picture. Interest costs are now rising far faster than in Ontario, Quebec and Alberta.

That means an ever-larger share of B.C.’s revenues is being eaten up by making debt payments, with 9.5 per cent of its annual income projected to go to interest charges by 2028-29, according to RBC Economics. As an increasing share of revenue goes to interest, that will leave less to cover for services, and threatens to push B.C.’s deficit even higher unless taxes rise or spending is cut.

💡 Adding to these pressures are a barrage of credit-rating downgrades that have alarmed bond markets and a public-sector hiring spree that never slowed down. You can read about those challenges here.

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Morning update

Global markets were on the rise as early signs from the earnings season pointed to strong profits, shoring up sentiment amid nagging AI spending worries and government bond turbulence.

Wall Street futures were mixed with the Dow in the red, while TSX futures edged higher.

Overseas, the pan-European STOXX 600 was up 0.42 per cent in morning trading. Britain’s FTSE 100 was little changed, Germany’s DAX rose 0.58 per cent and France’s CAC 40 gained 0.5 per cent.

In Asia, Japan’s Nikkei closed 0.85 per cent higher, while Hong Kong’s Hang Seng fell 0.9 per cent.

The Canadian dollar traded at 71.18 U.S. cents.