The first alarm bells over British Columbia’s finances started tinkling last spring, when NDP Premier David Eby rushed to spend billions of dollars in surplus revenue rather than – horror of horrors – pay down the provincial debt.
Under B.C. law, any surplus not spent by the end of the fiscal year is shunted to debt repayment. Mr. Eby was determined not to let that happen. The result was a quick-march to spending billions of dollars in surplus bequeathed him by his NDP predecessor, John Horgan.
That was a significant moment, but not because of any serious negative impact on B.C.’s balance sheet. The province still had a lighter debt load compared with most other provinces, and to its own levels two decades ago. But the episode underscored that Mr. Eby does not much care about deficits and debt, a contrast to the fiscal prudence of Mr. Horgan, who had a habit of running budget surpluses.
Those alarm bells are ringing a little louder, after Mr. Eby’s government tabled a budget in February that projects a sharp rise in debt levels through to fiscal 2026-27, prompting the second credit downgrade in a year from the S&P Global ratings agency.
Now, that rating is still solid enough, AA-, with a negative outlook. But B.C. has fallen to the middle of the pack among provinces, and behind Alberta, Saskatchewan, Quebec and Nova Scotia.
The accompanying chart shows why: B.C.’s debt is on a sharp upward track under the Eby government, with total provincial debt rising from 22.6 per cent of gross domestic product in fiscal 2023 (the transition year between the Horgan and Eby governments) to a forecast 35.8 per cent in fiscal 2027.
Even the projected debt levels of 2027 compare favourably with most other provinces. The problem is not the level of B.C.’s debt, but how quickly it is rising.
S&P calls that trend “a turning point” for the province’s finances, noting that the “size and persistence of material after-capital deficits differentiate B.C. from its peers.” The words are measured, but the warning is clear: B.C.’s finances are headed in the wrong direction.
The fiscal plan is likely understating the problem. Health spending, for instance, is to increase by 14.9 per cent in the current year, but that growth suddenly decelerates to 2.6 per cent and 1.6 per cent in the following two years. That would result in reduced health care funding, once adjusted for population growth and inflation. The same pattern shows up for the education and social services budgets.
Is the NDP contemplating a period of relative austerity? Or are those numbers understated to keep the deficit and debt picture from looking even more gloomy?
And then there is the matter of a provincial election this fall. It beggars belief to think that the NDP will not add more spending on top of its current plans during the coming campaign.
Beyond those short-term fiscal downsides, there are longer-term demographic trends at work that will also exert added pressure on health care spending as the baby boomers enter their 80s and 90s.
Finally, to compound the problem, the NDP government has baked in costs that cannot be easily reversed. Employment in the core public service (which excludes positions such as teachers and nurses) has surged by nearly 30 per cent since the NDP formed government, with the pace of hiring accelerating under Mr. Eby. Overly generous wage settlements have added to costs.
British Columbia’s finances are not yet on a precipice, or even nearing the edge. There is ample time to listen to the warning signs and to adjust the province’s fiscal trajectory. But will Mr. Eby listen?