B.C. Minister of Finance Brenda Bailey tables the provincial budget in the assembly at legislature in Victoria on Tuesday.CHAD HIPOLITO/The Canadian Press
British Columbia Finance Minister Brenda Bailey introduced a budget that includes a record-high deficit, despite income tax hikes and trims to the civil service, as the province girds for economic uncertainty.
She acknowledged that B.C. is facing “serious fiscal pressures” and blamed the turbulence caused by U.S. President Donald Trump’s trade policies and tariffs.
“We must assume this pressure on our revenue is the new normal and operate accordingly,” she said in her budget speech on Tuesday.
British Columbia is the first province to deliver a fiscal plan for 2026-2027. The government of Premier David Eby has been harshly criticized for racking up unprecedented deficits and a near doubling of the provincial debt since 2023.
Brenda Bailey has delivered a budget that raises the base income tax rate but fails to rein in the deficit, which is predicted to hit $13.3-billion next fiscal year. The finance minister says the budget protects critical services, including health care and education, while taking action to cut spending and boost revenue.
The Canadian Press
Other provinces, too, have warned of coming budgets drenched in red ink. Earlier this month, Alberta Premier Danielle Smith said “significant” deficits are in store for her province as it tries to grapple with low oil prices. She said the provincial budget due to be delivered this month is going to be a “tough” one.
Ontario’s fiscal watchdog said earlier this month that the province is not on track to deliver its promised balanced budget by 2027.
Here are the highlights of B.C.’s budget
In British Columbia, the deficit for the fiscal year that ends in March is set to be a record-breaking $9.6-billion, but it is projected to jump even higher to $13.3-billion in the budget year to come. That puts B.C. at risk of another credit downgrade, as the provincial debt-to-GDP ratio – the key metric considered by bond rating agencies – rises to more than 30 per cent. That’s roughly double the rate since the NDP came to power in 2017.
Servicing on the provincial debt – the interest bite – is increasing as well. It is set to consume more than 6 cents out of every dollar of revenue in the coming fiscal year. Ms. Bailey said she hopes the bond rating agencies will recognize the structural changes in spending and revenue she is introducing that are meant to improve the province’s financial footing in the years to come. A worsening credit rating can increase the cost of borrowing.
“It’s on my mind,” Ms. Bailey told reporters during a financial briefing on Tuesday. “No one worries about the deficit more than I do.”
Over three years, the government intends to “right-size” the public sector with a reduction of 15,000 full-time equivalent positions. Ms. Bailey said the objective is to protect core services and the cuts will mostly be found among management and other non-union positions in the broader public service, which includes Crown corporations and health authorities.
The public-service cuts mirror the federal plan to cut public-service workers by 10 per cent over 2024 levels. In contrast, the rate predicted by Ms. Bailey will amount to 3.4 per cent.
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The $625-million in savings from public-service job cuts in B.C. expected in the first year of the new fiscal plan will be more than consumed by public-sector union wage hikes that are on track to drive up labour costs by $1.2-billion this year.
Labour compensation is the single largest cost across the B.C. government, and while many contracts are still being negotiated, recent settlements have established the pace at 3-per-cent wage increases per year in a four-year contract. That is a structural cost pressure that will continue to grow but in the short term, the money for wage hikes will be taken from the province’s $5-billion contingency fund.
“This budget presents a grim picture,” said Bridgitte Anderson, president of the Greater Vancouver Board of Trade. “Despite the significant tax increases which impact all British Columbians, the debt is growing 2½-times faster than the economy, and that is not sustainable.”
The province’s personal income tax rate will increase by 0.6 per cent on the first $50,000 of taxable income for 2026. Sixty per cent of British Columbians will pay more, while low-income earners will see the rate hikes offset by expanded tax credits.
A tax measure that will have a greater impact is the expansion of the 7-per-cent provincial sales tax, which will now apply to professional services such as accounting and architecture. That measure will bring in about $260-million in the first year but it will rise to more than half a billion dollars in taxes in year two of the fiscal plan.
Sussanne Skidmore, head of the BC Federation of Labour, applauded the government’s additional investments in trades training, but lamented the structure of Tuesday’s tax hikes.
“I have some concerns, when we look at the tax increases that predominantly fall on the middle, working class,” she said. “We think they should have been more focused on tax increases for the wealthiest British Columbians.”
For David Williams of the Business Council of British Columbia, debt servicing costs are a major red flag. “We’re in a bit of a spiral,” he said. “The cost of servicing the debt is the fastest-rising line item in the budget.”
He said this budget is not going to reassure bond rating agencies, which have already issued multiple downgrades to B.C.
Ms. Bailey said British Columbia still has more affordable debt than Quebec and Ontario.
B.C. government promises tough budget to tackle ‘unsustainable’ deficits
Capital projects are being slowed, meaning many upgrades in long-term care, schools, hospitals and transit will take longer to complete. While the government will still spend $38-billion on capital projects, the plan adjusts the pace. Several long-term care projects and a hospital expansion in Burnaby will be delayed.
The largest program expenditures in government are for health care and education, and here the government is planning to rein in the rate of growth. Health care spending is set to rise by 4 per cent in the coming year – which would be the smallest increase in the last seven years, while education is only going to increase by 1.8 per cent.
There are some bright spots in the economy, which is expected to slow to 1.3-per-cent growth in 2026. Natural resource revenues are expected to climb, mostly owing to rising natural gas royalties.