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B.C. economy flashes red-light warning ahead of Budget 2024

Business and industry leaders press for fiscal restraint in provincial budget as the province’s economic growth flatlines, and businesses’ financial burden mounts
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Business leaders and economists don’t want to see B.C.'s budget balanced through higher taxes

For the last decade or more, B.C. enjoyed bragging rights for its economic performance relative to other parts of Canada. The province generally outperformed its counterparts, often leading the country in job, population and GDP growth.

From 2010 to 2018, B.C.’s GDP grew at nearly twice the pace of growth registered among Canada’s other provinces, the Fraser Institute noted in 2020.

But more recently, the wind has come out of B.C.’s economic sails. And this economic cooling is occurring at a time when both B.C.’s population and public sector continue to grow.

“Real GDP, or real income per person, is going down because our population is increasing by 2.5 or three per cent a year [and] economic growth is going to come under one per cent,” said Jock Finlayson, senior economist for the Independent Contractors and Business Association (ICBA).

“So I would expect that real GDP, or real income per person, will be negative. It was negative last year. And I think we’re looking at two more years where we’ll continue to see declines in GDP per person. By the way, that’s true for Canada as well – it’s not just British Columbia.”

“We’re in an environment of low growth, where British Columbia will be akin to Ontario in last place for economic growth across Canada,” said Bridgitte Anderson, CEO of the Greater Vancouver Board of Trade (GVBOT). “In an environment where we’ve got low growth and high costs, we are somewhat concerned about what the next year or two will bring.”

GDP for B.C. – and for economies around the world – fell off of a cliff in 2020 due to the economic impact of the COVID-19 pandemic. It then came roaring back in 2021 with growth of 6.2 per cent. In 2022, B.C. GDP posted 3.8 per cent growth.

But inflation followed by higher interest rates cooled the economy in 2023, and the province’s Economic Forecast Council expects growth to come in at under one per cent for the year.

In 2024, B.C.’s economy could nearly flatline. Projections have real GDP growth at between just 0.3 to 0.7 per cent, which is on par with estimates for Ontario and Quebec, but below the expected growth rates for Alberta, Saskatchewan and Manitoba. This low growth will mean B.C. Finance Minister Katrine Conroy will have less tax revenue to work with in Budget 2024.

“For the last several years, most or all of the job growth has been in the public sector,” Anderson noted. “And while some of that is understandable, because there has been a lot of job growth in the health-care system, for example, it is the private sector that is the economic engine of this province.”

Since 2019, there has been 20 per cent growth in public sector jobs in B.C., Finlayson said, while private sector payroll jobs have increased by just two per cent.

“The private sector is really struggling, and I’d like to see in the budget a frank acknowledgement of that, and a recognition that it’s time for a pivot away from a public sector-driven economic agenda for the province to one that recognizes that we are primarily a market economy,” Finlayson said.

The B.C. government has been spending more than it takes in. While business leaders consider much of the capital spending to be good debt that helps finance the things that a growing province needs – hospitals, housing, bridges and public transit – over-spending on the operational side is becoming harder to justify, given the rising cost of borrowing and debt servicing.

It is now costing the B.C. government $275 million per month to service its debt, said Carson Binda, B.C. director for the Taxpayers Federation of Canada.

“This year alone, over the last fiscal year, we saw a 10-per-cent increase in provincial government spending,” Binda said.

“Inflation rose by about three per cent. Population also grew by about three per cent. So that increase in government spending is far outpacing either the rate of inflation or provincial population growth.”

Ken Peacock, chief economist for the Business Council of BC (BCBC), said the B.C. government needs to start reining in spending.

“We’re quite concerned that we’ve moved to the situation of a structural deficit,” he said. “That suggests that even in strong times they’re running a deficit. That’s problematic.

“It’s unlikely that they’ll balance the budget, but we’ll be looking for some sort of fiscal anchor plan to get back to a balanced budget, over several years perhaps.”

Business groups don’t want to see the budget balanced through higher taxes. Instead, they would rather see balance through spending discipline. They are also pressing for tax relief.

Last year, GVBOT produced a report that showed the B.C. government had imposed $6.5 billion in additional government costs on the private sector in just two years.

The lion’s share of that comes from the employer health tax (EHT) that replaced the Medical Services Plan in 2019. The EHT costs employers $4 billion a year, according to GVBOT’s Counting the Costs report. Another $1.2 billion is paid in mandatory paid sick leave. The carbon tax added $500 million.

Employers with payrolls of at least $500,000 must pay the EHT. GVBOT and other business organizations, including the Canadian Federation of Independent Business (CFIB) want the B.C. government to raise the threshold to $1.5 million.

“It’s one thing that would provide a lot of relief to a lot of businesses, particularly small and medium businesses across a broad sector,” Anderson said.

CFIB policy analyst Emily Boston said the CFIB has three main budget “asks” from the provincial government, and increasing the threshold for the EHT is one. The CFIB also wants to see some general tax relief, as well as a rebate for employers who pay WorkSafeBC premiums. WorksafeBC currently has a $2.5 billion surplus, Boston said.

“Our key ask is to issue a rebate to employers,” she said. “It’s at a point where it’s 146 per cent funded.”

Many businesses are feeling the pinch from carbon taxes, which will increase on April 1 to $80 per tonne from $65 per tonne. That will push the cost of gasoline to $0.17 per litre from $0.14 cents per litre, and diesel from $0.16 to $0.20 per litre.

Business leaders don’t expect to see the current NDP government cut or pause the carbon tax. But they say they would like to see the motor fuel tax scrapped.

When the carbon tax was introduced in 2008, it was revenue neutral. Offsetting carbon taxes with an eliminated or lowered motor fuel tax might bring the carbon tax back to, or closer to, revenue neutrality.

“We have been saying to the government, now is the time to look at that [revenue-neutral] model again,” Anderson said.

The next provincial budget will be tabled on Feb. 22. 

nbennett@biv.com