B.C.'s Finance Minister Brenda Bailey and Premier David Eby in Burnaby, B.C., on July 7. The provincial government's deficit will rise in the current fiscal year to a record $11.6-billion, according to a fiscal update.DARRYL DYCK/The Canadian Press
B.C. Premier David Eby’s decision to remove the province’s consumer carbon tax has helped drive British Columbia to a new record-high deficit of $11.6-billion.
B.C.’s carbon tax was eliminated on April 1, after Mr. Eby promised voters he would do so in a hotly contested election campaign last October that ended with his New Democratic Party barely holding on to power. The impact of that tax change, calculated for the first time in Monday’s fiscal update, is a loss of $2-billion in government revenue in the current fiscal year.
The new deficit forecast announced by B.C. Finance Minister Brenda Bailey would have been substantially larger, were it not for the fact that the province is counting in this budget 18 years’ worth of income from a recent settlement with tobacco companies.
B.C.’s $2.7-billion one-time windfall flows from a compensation settlement won by the provinces and territories to offset the harms of tobacco consumption. Although the settlement is framed as cost recovery for governments’ health care expenditures, the province is booking its share as general revenue.
Ms. Bailey defended the decision to include the entire estimated settlement in the current fiscal year, saying it is a standard accounting practice. By contrast, the Alberta government is booking only roughly one-quarter of its settlement money this year, and it is putting those funds into its Heritage Savings Trust Fund.
“I assure you, this is a traditional accounting treatment. That was a decision made at the staff level, not a political decision,” Ms. Bailey told reporters. “This isn’t a magical number out of nowhere.”
Overall, the fiscal update concludes that the B.C. economy is still resilient despite tariffs imposed by the U.S. administration. Economic growth forecasts have been revised down to 1.5 per cent in 2025 from the 1.8-per-cent growth expected in March.
A new Scotiabank Economics report confirmed Monday that B.C. is less exposed than the provinces of Ontario, Quebec, Alberta and New Brunswick, which are all experiencing more significant downgrades as a result of the trade war with the United States. B.C. can expect its economy to shrink by 0.1 per cent as a result of U.S. tariffs, the economists concluded.
But the province’s revenue losses have not been matched by spending cuts. A spending review has identified just $300-million in savings this year to offset not only the end of the carbon tax but also declining revenues from housing sales and natural resources.
Ms. Bailey sidestepped a question about when B.C. will return to a balanced budget, saying she won’t take a “chainsaw” to public services. “We thought that we were going to be moving into more positive times this year,” she said. “Then, of course, we were hit by a trade war. So I think it’s the reality of the world we live in that we’re in very challenging times.”
Business leaders and opposition critics said the government is not cutting spending fast enough to counter a runaway deficit.
“The latest quarterly financial report unfortunately confirms that B.C.’s finances are not on a sustainable path,” said David van Hemmen, vice-president of the Greater Vancouver Board of Trade. “We need a clear and transparent plan to put provincial finances on a sustainable footing, strengthen confidence, and create the conditions for private-sector growth.”
B.C. Conservative finance critic Peter Milobar said the fiscal report uses “creative accounting” to understate the true size of the deficit. “While tariffs and global uncertainty do add pressure to our fiscal position, the brunt of the damage has been caused by this government’s own decisions,” he said.
The provincial debt is projected to reach $155-billion by the end of the fiscal year. At that rate, five cents out of every dollar will go to servicing the taxpayer-supported debt.
The carbon tax was introduced in British Columbia in 2008 as a revenue-neutral measure to help push the government’s climate action agenda. The NDP government, in 2017, reshaped the tax, retaining a portion as general revenue. But in a desperate election battle last fall, Mr. Eby matched the rival Conservative party’s promise to end what he described as a “divisive” tax.
Ms. Bailey told reporters Monday the removal of the carbon tax was meant to provide relief to British Columbians, not to help the government’s bottom line. “This is an affordability measure more than a fiscal measure, and I think that people will feel the benefit of this tax cut as time goes forward,” she said.
The elimination of the carbon tax reduces revenues by $2.8-billion this year, but that figure is mitigated because the NDP government also axed the associated tax credits, taking away $740-million in relief for low-income British Columbians.
The Finance Minister said the government intends to help expand the economy to make up those lost revenues in the years ahead.
“We’re reviewing all opportunities in terms of economic growth,” she said.
Mr. Eby will be in Ottawa later this week, asking the federal government to help secure new investments in mining and infrastructure.
Two of the five projects that are now being reviewed for fast-track approval under Ottawa’s Building Canada Act are in B.C., but Mr. Eby is lobbying to add more projects to that list.