As ratings agency express concerns about B.C.'s budget deficit and economic direction, one B.C. economist is urging observers to cut B.C. Finance Minister Brenda Bailey some slack amidst the uncertainty caused tariffs and criticism from the political opposition.
Meanwhile, while acknowledging Bailey faces a difficult task, another B.C. economist warned of the dire financial situation B.C. is facing.
The provincial budget officially shows a record-setting deficit of almost $11 billion this year, but Moody's Ratings has predicted that figure will eventually hit $14.3 billion this year, with rising deficits in 2026-27 and 2027-28 downgrading B.C.'s credit rating.
Moody's projection for this year includes government's recent decision to eliminate the consumer carbon tax and climate action tax credit. The expected net effect is a revenue loss of almost $2 billion. The provincial budget speaks of $300 million in “administrative and operational efficiencies" for this year with additional savings promised in the next two years. But details are limited amidst promises of a spending review and uncertainties caused by tariffs.
This combination of events has led the Conservative Party of B.C. to revive a term that has been part of B.C.'s political vocabulary since the mid-to-late 1990s, when the New Democrats had last governed for an extended period of time: fudge-it-budget.
Conservative Gavin Dew, MLA for Kelowna-Mission,, brought the term back earlier this month.
"The (finance minister) said yesterday that the government knew credit downgrades were coming, saying, 'they were a strong likelihood.' Let me get this straight: this government publicly presented a misleading budget while privately anticipating axing the carbon tax and getting hit with credit downgrades and increased borrowing costs. Can this (finance minister) please help me understand how this is not a return to the fudge-it budget of the (1990s)?"
Bailey defended her budget as protecting core services, while moving on the "path toward balance" across multiple budgets.
"A budget is a moment in time and it is not appropriate to include speculative things in a budget," she said.
Marc Lee, senior economist with the Canadian Centre for Policy Alternatives, said B.C.'s finances will ultimately be worse than figures tabled in the budget.
"(The) growth numbers that they are putting forward just didn't seem particularly realistic given the overall state of the economy," he said. Not only were growth forecasts overly optimistic, it is also difficult to assess the impacts of U.S. tariffs on provincial exports, especially softwood lumber, he added.
Changes to the carbon tax will further impact the overall deficit, he added. But Lee questioned critics, who wondered why Bailey tabled the budget with the knowledge that revenue from the carbon tax would eventually disappear. While the budget itself could have had a more fulsome discussion around eliminating the carbon tax revenue, government had to wait until Ottawa had eliminated the legal requirement for the tax, Lee said. Government also has to have a budget, he added.
As for the various uncertainties, Lee pointed to budget contingencies of $4 billion, largely allocated based on the uncertainties caused by tariffs. Other looming costs include labour negotiations and a potentially difficult wildfire season.
But Lee also urged perspective. Previous budget cycles witnessed unexpected developments in either direction, he said, adding that the level of uncertainty is always higher for provincial budgets.
"There is a lot of political theatre right now. Obviously, the opposition is trying to take advantage of the situation and invoke a frame of the current government being irresponsible fiscal managers and that kind of stuff," he said. He added that is their prerogative.
"Overall, I'm in favour of B.C. running a reasonably large deficit given the underlying economic conditions."
That said, if government wants to lower the deficit, Lee said he would recommend cutting the home-owner grant. Other possible measures include increasing top income tax rates or property tax rates, "in essence, asking well-off British Columbians to help out a little more," Lee said.
"I would not want to cut in areas like education, social services and health care. The danger in cutting spending is that it reinforces the recessionary pressures and weakens the economy.
Jairo Yunis, director of policy with the Business Council of British Columbia, acknowledged the budget situation is challenging given the uncertainty of the tariffs.
"I would say the finance minister has a very difficult job and trying to estimate the impact of tariffs is very hard," he said. "But the reality is that we are in a very bad fiscal shape and as a result of that we can see that we had our fourth credit downgrade in four years."
Yunis said B.C. needs to get its fiscal house in order.
"We need some spending growth restraint," he said. "We need some tax and regulatory reforms to grow the economy and grow the top line (revenue) as well. We need to be more bold and ambitious."
Yunis also warned against delays when it comes to restraining spending.
Steps avoided now will lead to more difficult choices down the line, he said. He specifically pointed to the experiences of the early 1990s when federal Liberal governments headed by former prime minister Jean Chretien and his finance minister Paul Martin made broad, across-the-board cuts to get Canada's financial house in order.
"We don't want to get to that point, where we had to make really difficult choices," Yunis said. "But they also provide a blue-print as to what might happen and what we can do to avoid making those tough choices."
Yunis said government needs a combination of spending growth restraint and more revenue, but warned against raising taxes to generate more revenue. Federal Liberals retained the GST after assuming power in 1993 even though that they had campaigned against it during the preceding election campaign. Higher revenue has to be part of the strategy, but not through higher taxes, Yunis said.
"It has to be by growing the economy," he said.
