Carole James, Minister of Finance, presented a fiscal update for B.C. on July 14. (B.C. government photo.)
The province of B.C. may have a deficit of $12.5 billion this year, B.C. Finance Minister Carole James said in a fiscal update Tuesday.
In an estimate of how the province’s fiscal position has changed since the pandemic hit, James showed that things are far from normal. As recently as February, the government was projecting a $220-million surplus.
James called the numbers “staggering” and “severe,” and she’s right.
"This could be the worst downturn experienced by our province in recent history," James said.
Last week, the federal government gave its own fiscal snapshot, forecasting government debt of $1.2 trillion by March 2021 and a deficit for this year of $343.2 billion.
About half of B.C.’s deficit can be attributed to losses of revenue from things like income tax, the property purchase tax, sales taxes and other revenues. The other half is due to increased expenses that have been used to provide supports to people and businesses, such as the increased climate tax credit.
Stressing that the fiscal snapshot is only an estimate, and an unstable one at that, James said there are many factors that could change the bottom line, including if there are new covid-19 outbreaks in B.C. or in countries we trade with, whether a treatment or a vaccine is found, how safe people feel in their jobs and their health, how government support programs affect people and how the central bank handles interest rates.
"No one has a playbook for dealing with this," James said. "Now is not the time to cut back…we will be doing our best to make sure that every cent that is spent is spent wisely." She said she doesn’t anticipate raising taxes.
To put the $12.5-billion projected deficit into context, the entire 2020-21 provincial budget presented in February included $60.6 billion in revenue, offset by $60.1 billion in expenses. There was $22 billion allocated for capital expenditures and a projected surplus of $220 million. The two biggest expense categories were health, at $22 billion, and education, at $6.6 billion. Total debt was forecast to be $49.2 billion, but that may now rise to $61.9 billion.
Because interest rates are low, B.C. is "very well positioned" to be able to afford the debt it is taking on, James said.
The new forecast calls for gross domestic product to fall by 6.8 per cent, before rising 3.1 per cent in 2021. Some economic forecasters have even more dire predictions, James said.
The $12.5 billion projected deficit could be as much as 4.45 per cent of GDP, while deficits in previous budgets dating back as far as 1969 show the biggest previous deficit was in 1991-92 at 2.8 per cent of GDP, government documents show.
Unemployment is disproportionately affecting youth and women, James said. Youth unemployment is now 29 per cent, while it was nine per cent in February. Unemployment is at its highest rate since 1987 and 235,100 jobs have been lost since the pandemic began, James said.
While the construction industry is stable, home sales have dropped sharply, James said. The overall value of residential sales may drop by 27.6 per cent in 2020, but there is “lots of volatility” in this market, James said.
These numbers show us why it was necessary to reopen society, despite the coronavirus still being an ever-present threat. It’s truly a choice between economic devastation or the loss of millions of lives. And of course, economic devastation can also cause lives to be lost. Governments are left with no easy choices.
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