B.C. government banks on big spending as it announces unexpected $5-billion surplus

Open this photo in gallery:

Even before B.C.’s Finance Minister announced on Friday an unanticipated surplus of more than $5-billion this year, the provincial government had started spending its windfall.

In the budget tabled in February, the provincial government projected a deficit of $5.5-billion. Halfway through the fiscal year, the uncertainty has been reduced and the province is awash in cash, with a $5.7-billion surplus in the forecast. Corporate and income tax revenues have improved substantially, and the province’s natural resource sectors have done better than expected.

Finance Minister Selina Robinson hasn’t explicitly promised to spend the surplus before the fiscal year ends in March, but the intent is clear. Since the summer, the province has added $2.2-billion in spending – half of that in the past week, since David Eby became premier.

“Our improved second-quarter results show that we’re in a strong position to continue making thoughtful decisions and investing in the things that people need,” Ms. Robinson told reporters as she presented the latest fiscal update.

Paying down the debt is not on her priority list, but that is the default if the province ends the fiscal year with a surplus. Mr. Eby still has a string of commitments to new spending that he hasn’t yet had a chance to announce, however, so the chances are good the surplus will shrink before the end of the year.

The Finance Minister cautioned that the current surplus is best viewed as a one-time bonus, because of a strong recovery from the downturn triggered by the pandemic.

“These numbers that we’re seeing here, this is a shock rebound,” she said. “Whether they’re going to hold over the long term remains to be seen.”

Much of the new spending this year has gone to one-time payments to help British Columbians who are struggling with rising inflation, which has driven up the cost of food, housing and transportation.

Some of the spending has been squeezed out of Crown corporations: Insurance Corporation of B.C. was directed to hand out $395-million in rebates over the summer. As well there will be a one-time credit for BC Hydro customers this winter, at a cost of $320-million.

In addition, the province added two tax credits, the Climate Action Tax Credit in October and the BC Affordability Credit to be paid out in January, worth a total of $1-billion.

But the largest spending increase is for public-sector wages, which are baked into the budget in future years, with the cost not showing up until next year.

In the current round of contract negotiations with the public service, the provincial government offered the most generous negotiating terms in a generation. On Friday, for the first time, Ms. Robinson provided an estimate of the impact of those settlements: $10.6-billion over three years.

B.C.’s updated revenue forecast for fiscal

year 2022–23

As of Q2, in billions of dollars

Budget 2022

Q1

Q2

0

2

4

6

8

10

$18

12

14

16

Personal

income tax

Corporate

income tax

Sales tax

Natural gas

royalties

Other natural

resource revenue

THE GLOBE AND MAIL, SOURCE:

B.C. MINISTRY OF FINANCE

B.C.’s updated revenue forecast for fiscal

year 2022–23

As of Q2, in billions of dollars

Budget 2022

Q1

Q2

0

2

4

6

8

10

$18

12

14

16

Personal

income tax

Corporate

income tax

Sales tax

Natural gas

royalties

Other natural

resource revenue

THE GLOBE AND MAIL, SOURCE: B.C. MINISTRY OF FINANCE

B.C.’s updated revenue forecast for fiscal year 2022–23

As of Q2, in billions of dollars

Budget 2022

Q1

Q2

0

2

4

6

8

10

$18

12

14

16

Personal

income tax

Corporate

income tax

Sales tax

Natural gas

royalties

Other natural

resource revenue

THE GLOBE AND MAIL, SOURCE: B.C. MINISTRY OF FINANCE

The Finance Minister said the province’s economy is fundamentally strong, and the public service should benefit from that.

“Those are our nurses and our teachers, who have been delivering for British Columbia,” she said. “They’re part of our ability to care for each other. And so that negotiated mandate, to make sure that the services that people rely on continue to be there, is absolutely critical. We believe that this is an investment for everybody.”

There are roughly 500,000 members of the provincial public service and more than half of the provincial budget goes to wages and benefits. That includes direct government, Crown corporations, health, community social services, kindergarten-to-Grade 12 public education and postsecondary workers.

Unions representing almost half of the work force have signed either tentative deals or have ratified agreements since September under the bargaining mandate. The province is anticipating that the rest will settle for similar packages. However, the final figures will be determined in coming years, as the three-year contracts include annual cost of living adjustments in years 2 and 3.

While it is not yet clear how much public-sector wages will rise, there is also uncertainty about the strength of B.C.’s economic recovery. Russia’s invasion of Ukraine can knock back the province’s trading partners, while supply chains are threatened by COVID-19 lockdowns in China. Around the globe, there is higher-than-expected inflation, and rising interest rates that together create variables that are difficult to forecast.

Ms. Robinson maintains that the fundamentals of the economy are sound, and B.C. will be able to pay the rising cost of its work force in the years to come.

“We have a strong economy, we have a diversified economy, and we’re going to continue to invest in people because we know that when you invest in people, you get a stronger and fairer economy for British Columbia.”

After 16 years of preaching restraint while in government, the Liberal opposition on Friday criticized the NDP government for stockpiling cash while British Columbians are struggling.

Liberal finance critic Peter Milobar said the challenges in the health care system, housing and the toxic drug crisis require urgent investments. He said the NDP government seems to have held back new spending announcements until Mr. Eby was sworn in, to allow him to win public approval.

But he said the government hasn’t attached any specific outcomes to its recent spending initiatives, making it difficult to measure whether they are working.

“The bigger concern here is that just simply throwing money at a problem has not translated to better outcomes,” he said.

Mr. Milobar added that the public-sector wage costs are concerning, because those financial obligations will carry on into future years.

“The numbers start to get very staggering because that is over and above what the government had budgeted for just in February. And so you know, there did not seem to be any real restraint when it came to governmental spending of these agreements.”