B.C. budget to be deliver amid looming U.S. tariffs
B.C. Finance Minister Brenda Bailey will deliver her budget Tuesday at the same time that punishing U.S. tariffs on Canadian exports are set to take effect.
The tariffs could tip the province into recession, but if they do not materialize as threatened, the province should see economic growth. Then again, the uncertainty alone is likely to dampen that projected growth.
Drafting a fiscal plan in the range of $90-billion under such exceptional circumstances has flummoxed the economists who provide the province’s forecasts.
It’s budget season in Canada and finance ministers across the country are dealing with similar challenges. Nova Scotia’s Feb. 18 budget includes $500-million in tax cuts and a $200-million reserve fund to help absorb economic pain resulting from tariffs. On Thursday, Alberta posted a $5.2-billion deficit for the coming fiscal year – a massive swing from its anticipated surplus in the current year – and promised a $1.2-billion tax cut.
With all the uncertainty, Ms. Bailey says she has crafted her first budget to deliver just the basics – core services such as health, education and welfare – while leaving fiscal room to respond to the possibility of an abrupt economic downturn.
For the past 24 years, B.C. has relied on a council of private economists from across Canada to forecast how the economy will fare in the year ahead. That forecast determines the estimates for government revenues, which in turn shape spending plans.
This year, Ms. Bailey’s 13 experts were less than helpful.
“Forecasters reaffirmed that in the absence of tariffs, they had expected steady economic growth for B.C.,” the province’s summary of their Jan. 31 meeting stated. The meeting was held after U.S. President Donald Trump moved into the White House, but before he put his threatened tariffs on pause for a month. Since then, the White House has delivered conflicting messages about another possible delay.
The council forecast concluded that the B.C. economy will expand by 1.9 per cent in 2025, with steady economic growth of 2.0 per cent annually on average through 2029. But these projections do not fully include the impact of potential U.S. tariffs.
The province’s own analysis predicts that broad-based 25 per cent tariffs, if fully implemented, would push the province into recession for the next two years.
Tariffs aside, B.C. was facing a slowing economy and a massive deficit.
Ms. Bailey says she had to make assumptions about revenues with varying – and changing – economic forecasts. She hinted at a minimalist spending plan that will be in marked contrast to the last NDP budget, one which resulted in an unprecedented deficit.
“To have a budget that leaves us room to respond is really important,” Ms. Bailey said in an interview Thursday as the budget documents were being printed. “There’s tremendous uncertainty, and what we’re doing is kind of putting our arms around protecting the services that are so important for people, and that’s really the focus that we’ve taken during this budget.”
While other provinces have looked to tax cuts and other consumer relief, the B.C. NDP government abandoned its election promise to deliver $1,000 in financial relief to households. Ms. Bailey said the province cannot afford to fulfill the promise, because of the trade turmoil created by Mr. Trump.
British Columbia is one of the least exposed provinces in Canada because roughly half its exports go to countries other than the U.S. But the repercussions of broad tariffs would still be deeply destabilizing to the province’s economy.
The Premier’s office has ordered individual ministries to find savings, and has imposed a hiring freeze. But upward pressure on health and social services in particular will be hard to rein in.
The biggest spending pressure in the B.C. budget – in any provincial budget – is health programs. The demand for more health services and infrastructure consistently climbs upward. But Health Minister Josie Osborne, in an interview, hinted that this year might be different. She has been tasked to meet the growing needs, but also to find spending cuts.
“It’s about recognizing the situation that we’re in and knowing that we have to do more with the resources that we have. And I’m confident that there are ways to do that,” she said.
“It’s a very difficult one,” said David Williams, chief economist for the Business Council of B.C., and a member of the economic forecast council. “You’ve got to feel for the incoming finance minister,” he said in an interview. He noted that Ms. Bailey inherited a deficit that is forecast to be higher in this coming fiscal year than the $6-billion of red ink at the peak of the COVID-19 pandemic.
The Business Council is urging the province to work on reducing the deficit, but it also says governments across Canada need to foster a friendlier investment climate to avoid hemorrhaging private capital.
“The threat is that companies respond by relocating their industrial capacity from Canada to the United States, where it’s just more secure and more competitive and more stable in terms of market access,” Mr. Williams said.
Premier David Eby, speaking to reporters on Wednesday, agreed that fleeing capital is a risk, and said the answer is to find new trading partners, and to back new resource-based projects.
This article was first reported by Globe and Mail
