B.C. Minister of Finance Brenda Bailey tables the provincial budget alongside Premier David Eby at the legislature in Victoria on Tuesday.CHAD HIPOLITO/The Canadian Press
In the coming year, British Columbia’s government will divert a little more than six cents out of every dollar in revenue to service its debt.
That might not sound like much, but as the fastest-growing cost pressure in the budget, paying the interest on the province’s debt will cost more than the amount B.C. will spend on child welfare. And it will only get worse in the coming years.
Four years ago, the “interest bite” was just 2.5 cents. By the end of the three-year fiscal plan that Finance Minister Brenda Bailey tabled Tuesday, interest on the debt will consume 8.2 cents out of every dollar the government brings in. It will cost $6.4-billion this year – that leaves less money for core services such as health care and education.
It will create more pressure to raise taxes as bond rating agencies start to breathe down the province’s neck.
“The amount of debt that you have in your economy, it can’t grow faster than your economy. And everybody who manages a household budget understands that,” the federal interim Parliamentary Budget Officer Jason Jacques said in an interview.
The Office of the Parliamentary Budget Officer produces an annual fiscal sustainability report on federal and provincial finances that is a key metric followed by bond rating agencies.
In its most recent report, the PBO had concluded that B.C. was the most profligate among the Canadian provinces, its fiscal plans ranking as the most unsustainable.
The report was based on the 2024 budget year and since then, B.C. racked up a record $9.6-billion deficit last year, even with economic growth of 1.5 per cent.
“Things might not be great in the Canadian economy, but it’s still an economic expansion. And during a period of growth, to continue to have debt levels rising faster than the ability to pay for it, it definitely makes things more challenging when a recession or an economic shock happens,” Mr. Jacques said. “And they always do.”
Seven highlights from B.C.’s budget, including a rising deficit and tax increases
B.C. is the first province to table a budget in this fiscal year and it is not alone in struggling with Canada’s current economic instability. But while some economists say B.C.’s budget struck a balance of priorities, others maintain that the budget does not amount to a plan to achieve fiscal health.
Ms. Bailey says this year’s budget is the beginning of a “multi-step process to adjust government spending” that will protect services that British Columbians rely on. But she is banking on strict limits in health care spending that will be difficult to achieve. The budget also includes tax hikes and an expansion of the reach of the provincial sales tax, but it still plans to grow spending eight times faster than revenues.
Critically, the budget does not alter an unhealthy trend. The debt-to-GDP ratio has grown from 15 per cent in 2022 to 30 per cent now. Continued economic growth is uncertain, given the risks, especially as the United States-Mexico-Canada Agreement on trade comes under review later this year.
Just weeks before the budget was tabled, the B.C. government signalled that it was preparing for hard times.
Shannon Salter, the head of the public service, warned her work force that the deficit was “unsustainable” and that job losses were coming.
In her budget speech, Ms. Bailey claimed she was reducing the deficit to face a period of serious fiscal pressure. “We must assume this pressure on our revenue is the new normal and operate accordingly,” she said.
Instead of reducing the deficit, however, the plan will increase the deficit to a record-high of $13.3-billion – almost $4-billion more than in the fiscal year just ending.
Already, the bond rating agency Morningstar DBRS is hinting it will give B.C. a credit-rating downgrade.
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
Last spring, the agency posted a negative outlook for the province, “reflecting our view that B.C.’s approach to fiscal management has been gradually deteriorating in recent years.”
While they will take weeks to formally review the budget documents, DBRS didn’t seem impressed with Tuesday’s budget on first glance.
“While the Province had previously indicated a potential path to balance, Budget 2026 suggests a worsening deficit trajectory and faster-than-expected debt accumulation,” the agency said in a Wednesday statement, the day after the budget was tabled.
There is no path to a balanced budget now, and the province has repeatedly missed its targets on spending. Health care expenses were projected to rise 10.6 per cent in fiscal 2024, 3.9 per cent in 2025 and 2.6 per cent in 2026. Instead, spending on health care climbed in those years by 15 per cent, then 25.9 per cent and then 11.9 per cent. In this budget, Ms. Bailey expects to keep health care costs to a 4-per-cent increase.
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Jesse Hajer, an associate professor in the University of Manitoba’s department of economics and labour studies, argues that B.C. is striking the right balance by spending on services when the economy is slowing down. “This is what we expect of governments in uncertain economic times,” he said.
“We want to see countercyclical fiscal policy, which is just a fancy way of saying the government needs to spend when other people are spending less, to help keep things going. So your ideal situation is you run surpluses when the economy is going well, and you run deficits when the economy isn’t doing so well.”
But Trevor Tombe, an economics professor at the University of Calgary, said B.C. has had an “unsustainable fiscal trajectory” for years.
That trajectory makes the province more vulnerable to changes such as a shift to higher interest rates, he noted – never mind the relentless pressure on health care spending that all provinces are grappling with.
“There will be some point in the future when the cost of that debt will force a policy choice for a government, there is no avoiding it,” he said.
Editor’s note: A previous version of this article incorrectly stated that the government of British Columbia will divert a little more than six cents out of every dollar in revenue to pay down its debt. Those funds will be used to service its debt.