It is a well-worn custom for new governments, upon assuming office, to reveal amid great flourish and alarm some ugly financial bombshell left behind by the outgoing regime.
Generally, it is used as an excuse for not going ahead with some spending promise, or, in other cases, for having to renege on a pledge to table a balanced budget. It is rare, indeed, for an incoming provincial administration to inherit an economic picture that is the envy of the rest of the country, or that is in even better shape than the previous government had suggested.
But that is precisely the situation B.C.'s new NDP government has come into after 16 years of Liberal Party rule. Finance Minister Carole James tabled a mini-budget on Monday – effectively an update on the February budget that the Liberals put forward. And it indicated the economy is roaring along at an even greater clip than the previous government had forecast.
B.C. is awash in cash – at least for the moment.
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Growth for 2017, predicted to be 2.1 per cent in February, is now estimated by the government to be 2.9 per cent, which most economists consider a conservative guess. B.C. continues to be one of the top economic performers in the country, which allows it to boast some of the most enviable metrics.
Barring some unforeseen cataclysmic disaster, the province will retire its operating debt by 2020. Its overall, taxpayer-supported debt, meantime, is projected to be $44.8-billion in 2017-18, increasing to $48.6-billion by 2019-20. By then, the province's debt-to-GDP ratio should increase to 16.3 per cent – which will be the lowest or second-lowest in the country, depending on what happens to Alberta's economy in the next couple of years. These numbers are important; they allow B.C. to maintain a Triple-A credit rating, which, in turn, helps the province save hundreds of millions in debt-servicing charges.
Whether B.C. maintains that sterling grade remains to be seen. The province's taxpayer-supported debt-to-revenue ratio is expected to increase from 81.8 per cent in 2016-17 to 93 per cent in 2019-20 under the NDP. That's a number that could set off alarms among the credit rating agencies that have warned they would be worried about any ratio number over 90 per cent.
Meantime, housing starts have also taken off again; they've hit 41,251 just from January to July, more than 10,000 ahead of the province's historical yearly average of 29,465. Those figures are much more robust than predicted in the Liberals' February budget, and represent tens of millions in additional revenue for the treasury.
All of this is pure gold, of course, for a new NDP government with a long list of programs and services it plans to pump money into – $1.8-billion in new spending over three years – not to mention a raft of measures aimed at making life more affordable for the mythical average person.
They include a 50 per cent cut in Medical Services Plan premiums for all British Columbians beginning in January, the elimination of tolls on two new bridges in Metro Vancouver and a nearly $500-million increase in social assistance rates for the first time in a decade. The government will fund some of these expenditures by doing what the NDP does best: tax the rich. The provincial income tax rate will rise to 16.8 per cent from 14.7 for people earning more than $150,000. The corporate income tax rate is going up a percentage point as well, from 11 per cent to 12.
It should be noted that, among the hallmark promises the NDP did not make good on in this budget update, were the $400 renters' rebate and its $10-a-day daycare program. Ms. James suggested those will be laid out in February, when the government unveils its first full budget.
A huge danger underlies the rosy economic portrait the Finance Minister painted on Monday, and it is this: The NDP has added hundreds of millions in guaranteed annual spending to the cost of government programs.
What happens if interest rates continue to rise and the bottom falls out of the housing market, with all the attendant tax revenue it represents? The budget forecasts natural resource revenues to decline in each of the next three years. What is the plan to replace that lost money? What if the NAFTA and softwood lumber negotiations end in a huge net loss for B.C.?
The New Democrats spent 16 long years in Opposition thanks largely to the impression the public formed that in government they were fiscal incompetents and ran the province into the ground. That history surely haunts them today.
This budget will likely be the easiest one the NDP tables. They get much, much harder from here on in.