Six charts that show how B.C.’s fiscal outlook has gotten worse

Regardless of which party comes out on top in British Columbia’s impending 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. 24th race – the NDP and Lorne Doerkson’s Conservative Party of B.C. – 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 the effect of U.S. President Donald Trump’s tariffs, is adding to anxiety about the province’s finances within the private sector.

That nervousness among businesses in B.C. “likely points to continued slow growth in the province and, regardless of the election outcome, a weaker fiscal impulse – or reduced government contribution to growth,” Ali Jaffery, chief economist at KPMG Canada, wrote in a recent note. “Bond markets will have little tolerance for high deficit spending in a province with weak private demand growth.”

Here are six charts showing how B.C.’s fiscal situation has deteriorated and why the province is at a critical juncture with its finances.

No path back to balance from either 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.

Meanwhile, 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 Mr. Eby took office in the 2022-23 fiscal year. That pace of debt growth far outstrips other large provinces. 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, 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 payments on its debt, with 9.5 per cent of what the province takes in annually 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.

The province has faced a barrage of credit-rating downgrades. None of this has gone unnoticed by bond markets and credit rating agencies. “Under Premier Eby’s administration, B.C. has been downgraded eight times in total by the main credit rating agencies,” Derek Holt, head of capital markets economics at Scotiabank, wrote in a recent note.

Fitch, one of the most recent rating agencies to downgrade B.C. debt in April, said the rating cut “reflects our expectation that meaningful erosion of debt metrics is likely given projected operating deficits and capital spending. With only modest offsetting actions so far and no plan to return to balance in the near term, further erosion is possible.”

Against that backdrop, he also noted that investors now demand a premium to hold B.C.’s 10-year bonds that is nearly as large as Quebec’s, the widest among Canada’s four largest provinces. And increasingly, those higher interest payments are heading south. Between April 1 to June 30, B.C. borrowed $14.9-billion in long-term debt from domestic and foreign markets with the latter, largely U.S. investors, accounting for 82 per cent of that lending.

The province’s public-sector hiring spree never slowed down. B.C. has added public-sector workers far faster than it has created private-sector jobs. Since the start of 2023, the province added four times as many workers in public administration, health care and education than in private jobs, according to numbers reported by Statistics Canada.

But while all provinces and the federal government ramped up public-sector hiring during the pandemic, B.C. never reversed that trend in the way some other governments have recently.

While the NDP costed plan makes no mention of what public hiring would look like under a new Eby government, the Conservative plan set out a hiring freeze; a review of ministries outside of health, education and a few others; and a target of returning administrative and management staffing to where it would have been relative to population growth since 2016-17, though it did not provide a proposed headcount.

Top earners in B.C. face a steep tax hike under Mr. Eby’s plan. A key part of the NDP’s re-election platform proposes new measures to tax the province’s top earners, including a new top bracket for incomes above $1-million, taxed at a rate of 24.5 per cent. Income in the $265,545 to $1-million range would increase by two percentage points to 22.5 per cent, starting next year.

Once added to the federal government’s top marginal rate of 33 per cent, the province’s combined top rate would be one of the highest among countries in the Organization for Economic Co-operation and Development.

The NDP said the higher taxes on top earners would generate roughly $1-billion a year in additional revenue by fiscal 2028-29. However, the Canadian Centre for Policy Alternatives, a left-leaning think tank, estimated the additional revenue from the tax moves would be closer to $750-million.