Whoever forms British Columbia’s next government once all the votes are officially counted can expect to face fiscal challenges and troubling macroeconomic headwinds that have blown the provincial economy into the shoals.
Whereas ÎÚÑ»´«Ã½ posted some of the strongest growth in ÎÚÑ»´«Ã½ between 2010 and 2018, TD Economics notes that ÎÚÑ»´«Ã½ is expected to be ÎÚÑ»´«Ã½’s economic “laggard” in 2024.
ÎÚÑ»´«Ã½ business economists say Premier David Eby has been growing government, not the economy, and has been doing it on borrowed money.
With tepid GDP growth, unemployment hitting six per cent in September, a spike in business bankruptcies, a high cost of living, lower commodity prices for major ÎÚÑ»´«Ã½ exports and swelling government debt, ÎÚÑ»´«Ã½’s economy appears increasingly anemic.
Major energy projects—including LNG ÎÚÑ»´«Ã½ and the Trans Mountain pipeline expansion—that helped buoy the economy over the past several years with tens of billions of dollars in spending and thousands of jobs have wound down.
“We’ve gotten a lift in our GDP growth because of the four big projects that ended or they’re going to be ending soon,” said Jock Finlayson, chief economist for the Independent Contractors and Business Association (ICBA). “And so that impetus, if you will, to economic growth is disappearing, and it’s not clear there’s anything to really take its place.”
Lower commodity prices, notably lumber and natural gas, have left the ÎÚÑ»´«Ã½ government with less tax and royalty revenues, adding strain to ÎÚÑ»´«Ã½’s finances. U.S. lumber prices have fallen from US$1,440 per thousand board feet in February 2022 to below US$400 in July.
Lower lumber prices, American softwood lumber duties, a shrinking timber supply and high operating costs have devastated a cornerstone industry, which has been hit with permanent sawmill and pulp mill closures in the past few years, resulting in an estimated 10,000 jobs lost in 2023 alone, according to the Council of Forest Industries (COFI).
On the macroeconomic front, inflation in ÎÚÑ»´«Ã½ has finally been tamed to two per cent, which led the Bank of ÎÚÑ»´«Ã½ last week to cut interest rates to 3.75 from 4.25 per cent.
“Lower interest rates will help small businesses especially invest in themselves and help produce more for British Columbians,” said Carson Binda, ÎÚÑ»´«Ã½ director of the Canadian Taxpayers Federation. “But we can’t count on those big macroeconomic conditions for British Columbia’s success. We need a government that takes fiscal responsibility seriously and doesn’t gamble on the global economy.”
ÎÚÑ»´«Ã½ has experienced above-average inflation, Binda said. Since 2017, grocery prices in ÎÚÑ»´«Ã½ went up 32 per cent and gasoline 54 per cent, he said, while inflation rose nationally 23 per cent.
“One of the first things we’d like to see, on Day One, is the next government cancelling British Columbia taxes—that being the carbon tax and the low carbon fuel standard,” Binda said. “It would help bring down the cost of essentials like gasoline.”
“After that, we need to seriously start tackling our debts and deficits. Our total debt this year is expected to exceed $128 billion. Interest on that debt is also just astronomical—$4.7 billion this year.”
Ken Peacock, chief economist for the Business Council of BC (BCBC), agrees that addressing ÎÚÑ»´«Ã½’s fiscal health should be a top priority.
ÎÚÑ»´«Ã½’s planned deficit of $7.9 billion for the 2024-25 budget year is now expected to come in at $9 billion. Under Eby’s leadership, deficits appear to have become cemented into fiscal planning, Peacock said.
“It’s a calamity, the current fiscal situation in ÎÚÑ»´«Ã½,” Peacock said.
ÎÚÑ»´«Ã½’s debt and deficits have led to credit rating downgrades, which can lead to higher borrowing costs. Finlayson noted Eby’s predecessor, John Horgan, managed to bring in surplus budgets, despite having projected deficits, thanks in no small part to windfall revenue from high commodity prices.
“When Eby came in, he basically opened the spending taps up in a way I’ve never seen in 30 years of doing this kind of work, and he’s really blown a gigantic hole in the government’s books with massive spending increases, no plan unveiled in the February 2024 budget to ever get back to balance, and then also a tremendous ramping up of capital spending,” Finlayson said.
Deficits have become so “baked in” that it will be very difficult for any government, NDP or Conservative, to dig its way out, especially if ÎÚÑ»´«Ã½’s economy continues to face broader economic headwinds, like lower commodity prices, which have a big impact on government revenues.
“You’ve baked in this spending, while you’ve also put downward pressure on economic growth generally,” Peacock said.
ÎÚÑ»´«Ã½’s GDP growth this year is projected to be just one per cent. Given that ÎÚÑ»´«Ã½’s population growth is two to three per cent, it means ÎÚÑ»´«Ã½’s per capita GDP growth is shrinking, Peacock said.
Most alarming is the private sector payroll job creation (i.e. excluding the self-employed) compared to public sector job growth. Peacock said there has essentially been no private sector job growth in ÎÚÑ»´«Ã½ since the beginning of 2019, while there has been a huge increase in public sector jobs.
“So we have five, five and a half public sector jobs for every private sector job,” Peacock said.
ÎÚÑ»´«Ã½ also faces pressures from immigration, which is a federal matter somewhat beyond the provincial government’s control. While immigration is needed in times when the job market is tight, that’s not the case now.
“We’ve got rising unemployment, including among young people and newcomers to the country, and yet the inflows are continuing,” Finlayson said.
“We had labour shortages for quite a while coming out of COVID—that’s over now. We’ve actually got excess supplied labour. There’s very little they can do about it in the short run, except to recognize it and do what they can to simulate a growing private sector.”
Binda said the ÎÚÑ»´«Ã½ government could address its debt and deficits by cutting spending.
“We also need to start tackling the explosion of ÎÚÑ»´«Ã½’s core public service,” he said, adding the NDP government has increased government core bureaucracy by about 40 per cent since 2017.
“The core public service are ministry staffers—they’re not frontline public servants like teachers, doctors, nurses, police officers bus drivers.”
Peacock fears the government will be tempted to address its deficit through taxation, not reduced government spending.
“There’s going to be a massive temptation to increase taxes,” he said.
Should the next government be a Greens-backed BC NDP government, Finlayson said he fears none of ÎÚÑ»´«Ã½’s fundamental economic problems will be addressed.
“The Eby government itself really threw a blanket over the private sector, smothered it to a large extent during his two years as premier,” he said. “I would expect that’s going to continue. I don’t see any rays of sunshine for the ÎÚÑ»´«Ã½ private sector in the prospect of a weakened NDP minority government propped up by the Greens.”
