B.C. Budget 2024: Projected deficit doubles from 2023 as spending is prioritized

Highlights

• Budget 2024 projects deeper deficits through fiscal 2026-27 than last year’s budget.
• Housing and affordability measures make up the lion’s share of new spending and lost revenue.
• Counter-cyclical spending brings expenditure up to $89 billion (7.4%) in pre-election budget.
• New rebates and tax credits prevent revenue from surpassing the fiscal 2022-23 level ($82 billion), driving a wedge between revenue and expenditure.
• Debt-to-GDP ratio expected to grow to 28% by fiscal 2024-25, nearly double the pre-pandemic average (15%).

Gap between revenue and expenditure widen

The B.C. government set out to prepare Budget 2024 from a weaker starting point than originally planned after wildly underestimating the surplus in fiscal 2022-23. The realities of an upcoming election amid softening economic growth didn’t help the government’s recourse either. In fact, estimates for the 2023-24 bottom line drifted further from balance and a deeper deficit is now projected in fiscal 2024-25. It’s more than twice the amount projected in last year’s budget (from $3.8 billion to $7.9 billion).

Though revenue shrunk in the last fiscal year, expenditure continued to barrel through—widening the wedge (and the deficit) between the two. As in the 2023 budget, the B.C. government’s fiscal plan stays far from balance and keeps the net debt-to-GDP ratio on an upward trajectory.

Housing and affordability drive up expenditure

Expenditure is set to outgrow revenue for a third consecutive year, up $6.2 billion (7.4%) in 2024-25. New spending measures are heavy on the affordability front where housing and other cost pressures took centre stage.

An additional 25% bonus on payment per child (starting July 2024) for families already receiving the BC Family Benefit and increases to the climate action tax credit (from $447 to $504 per adult) are among the more costly measures put forward. This amounts to $470 million and $747 million, respectively in fiscal 2024-25.

The renter’s tax credit (announced in last year’s budget) also made it to the income statement this fiscal year, representing another $267 million in costs. But with housing top of mind, this isn’t where the affordable housing measures end. The province’s new BC Builds program made its debut—aimed at expanding housing supply. The program intends to use underutilized land as well as low-cost financing and grants. The program is set to cost $150 million in additional operating expenses over three years and has already secured $2 billion in financing from the federal government.

Tax credits and rebates keep revenue from catching up to expenditure

Despite slower economic growth, the boatload of tax credits and rebates offered in this year’s budget won’t prevent B.C.’s revenue from rising 5.4% in the 2024-25 fiscal year. Tax revenue is set to lead the pack in terms of growth (6.5%), followed by income from crown corporations (5.4%). This should bring total revenue back to where it was in fiscal 2022-23 ($82 billion) after a particularly low year for tax revenue due to a shrinking corporate tax base and lower natural gas royalties.

However, the new tax credits and rebates to support housing and affordability will keep the wedge between revenue and expenditure from narrowing. Measures including the one-time electricity rebate (which offers about $100 per year in residential bill savings starting April 2024) and changes to the employer health tax exemption threshold (from $500,000 to $1 million starting in the 2024 calendar year) are set to cost the government an estimated $370 million and $108 million, respectively in lost revenue this year.

Increases to the first-time home buyers’ exemption (from $500,000 to $835,000 starting April 2024) and newly built home exemption threshold (from $750,000 to $1.1 million starting April 2024) are set to cost an additional $100 million in lost revenue in fiscal 2024-25.

The province’s new anti-flipping tax—which subjects all properties that are bought and sold within two years to a capital gains tax (effective January 2025)—was among the few revenue-generating initiatives to address housing affordability by discouraging short-term speculation in the market. It’s expected to generate $11 million in tax revenue this fiscal year and $43 million in fiscal 2025-26.

Transportation and healthcare remain investment priorities

B.C. topped its previous record in this budget after tabling the highest taxpayer supported infrastructure spending plan ever in 2023. It’s committing $43 billion over the next three fiscal years. Much needed investments in transportation and healthcare made up the lion’s share (again), using up $15 billion and $13 billion of capital expenditure, respectively. Most of these projects are intended for capacity enhancements and redevelopment.

BC Hydro will claim the vast majority of the self-supported capital plan ($13 billion) at $12 billion, a portion of which will go to fund construction for a third dam and hydroelectric generating station to meet growing demand.

Net debt burden to grow by 50% in three years but still among lowest in Canada

The taxpayer-supported debt profile is set to grow from $72 billion to $89 billion (23%), ballooning to more than $125 billion over the next three years. With modest growth projected in the years ahead, net debt is set to reach 21% of nominal GDP this fiscal year—the highest ratio in more than 40 years.

Although some modest improvements were made to the net debt-to-GDP position over the last two fiscal years, these improvements will be more than offset by a rapid increase in the province’s debt burden over the remainder of the plan. Indeed, the debt burden is set to reach a new record of 28% of GDP in fiscal 2026-27— nearly double the pre-pandemic average of 15%.

Even though B.C.’s net debt burden is still among the lowest in Canada, we’re disappointed to see the province’s net debt-to-GDP position change so dramatically. The spending plans laid out in Budget 2024 represents a continued departure from the sustainable path the province had been tracking, and coming at a time when the economic situation isn’t exactly dire. The interest bite is still manageable (for now), but economic stagnation in the near term and modest growth in the out years of the plan could bring this trend to concerning levels if it persists over the longer term.

Addressing the housing crisis requires long-overdue support from all levels of government including provincial, and is expected to take a toll on B.C.’s fiscal position. The government may want to follow other Canadian provinces by committing to clear fiscal anchors to ensure deteriorating trends don’t get out of hand in the longer term.

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