Lower revenues for natural resources including natural gas, and projected costs for fighting wildfires totaling nearly $1 billion have inflated the projected year-end provincial deficit by $2.5 billion to $6.7 billion.
The province is also downgrading its GDP forecast in the face of global economic uncertainty and elevated interest rates, which will depress new housing starts in the coming years, raising questions about the government’s housing agenda.
These figures appear in the government’s fiscal update for the first quarter of 2023, which also includes $5.5 billion in contingencies and $700 million in forecast allowances.
Finance Minister Katrine Conroy acknowledged in her opening remarks that B.C. is facing a global economic slowdown, but added that it won’t change government’s focus.
“At this time, what we are doing, is we are going to keep providing services to people the way we have been since 2017,” she said, when asked whether British Columbians should expect to see a new taxes or cuts in services. “We recognize that we need to invest in people in order to have a strong economy and that’s what we are going to continue to do.”
Conroy also rejected suggestions that the province’s financial path needs immediate correction in light of projected deficits totaling almost $14 billion by 2025/26.
“There is an ultimate goal to balance,” she said. “I wouldn’t say we are hemorrhaging money. What I would say is that we are investing in people…it’s not the right time to raise taxes and cut people’s services. The former government did that and we are not going to do this.”
That means that ongoing spending in various areas, including housing, she said.
The ministry “prudently expects” housing starts to total about 46,700 units in 2023, 42,100 units in 2024 before averaging out at around 40,000 units per year over the medium-term. Current figures show B.C. on track for 51,312 units in 2023.
When asked about the difference between the new housing start projections from her ministry and the housing minister’s decision to task 10 municipalities to build 60,000 new units within five years, Conroy pointed to the labour market and other issues.
“I think we are being prudent in what we are forecasting and we will continue to work with our partners to increase the housing stock in this province, but we need to be realistic right now,” she said. “(I) am not a forecaster but I know forecasters are doing their due diligence when they are making those projections.”
Those projections also include a forecasted GDP of 0.8 per cent for 2024, down from 1.4 per cent in 2023 amidst global uncertainty.
Projections also call for significantly lower royalties from various natural resources, including natural gas. The ministry predicts natural resource revenues to be down $2.2 billion over the next three years, mostly from lower natural gas royalties, which is expected to be down 58 per cent from initial figures.
This raises the question of how and why B.C. missed out on the natural gas boom that happened after Russia’s invasion of Ukraine.
“Our refineries aren’t quite up and running yet,” Conroy said. While prices rose because of the war, warmer winters in Europe and the United States created less of a demand, she added. “Also, the United States has a significant supply and also they have the capacity for storage.”
BC United’s shadow finance minister Peter Milobar said the projected deficit is well in excess of contingencies and forecast allowances in noting that the update does not include updated price tags for capital projects such as the new, second Surrey hospital, whose project cost has risen by $1 billion to $2.88 billion. The final bill for fighting wildfires is also not in yet, he added.
“Households in British Columbia have been making massive adjustments in their households over the last year and this provincial government seems unwilling to acknowledge that they can take steps to better manage and get a handle on their spending,” he said. “It’s not about being opposed to capital projects being done — it’s about the efficient use of those tax dollars to make sure you are getting as many capital projects done for the same amount of money spent.”
Milobar noted that government was already heading the wrong way and projected deficits are not going smaller but bigger.
“This is worse than what they were thinking,” he said. “They are going the wrong way here.”
Milobar also criticized what he called the “disconnect” between the announced targets of the housing minister and the housing projections in the fiscal update.