British Columbia was in the middle of a difficult third pandemic wave in April when the government presented its 2021-22 budget. The ink was dark red.
The province forecast a deficit of almost $10-billion, on revenue of $58.9-billion. The challenges – the ongoing pandemic, an uncertain economic recovery – were clear, and the outlook several years into the future was not good.
This week, as the province is working to recover from a devastating storm, B.C. had some good news. The fiscal picture for 2021-22 is remarkably improved. Revenue is predicted to hit $68.2-billion, and the deficit is reduced to $1.7-billion. Credit goes to an economy that is delivering more personal and corporate income taxes to the provincial treasury, along with a range of other gains. A long and slow convalescence is morphing into a fairly rapid recovery.
The trend has been in motion across the country since the summer. Provincial budgets are in better shape than expected – or, at least, less tattered than feared.
Ontario, in an early November budget update, forecast a 2021-22 deficit of $21.5-billion, two-thirds smaller than forecast in its budget in March. Much of the credit, as in B.C., goes to higher revenues. Quebec on Thursday was the latest to report a stronger fiscal position.
Similar revisions improved some provinces’ pandemic-weary books last year, too. Ontario saw a huge swing. At the worst, it predicted a 2020-21 deficit of almost $40-billion. The deficit ended up at less than half that, at $16.4-billion.
It adds up to a lot. Economists at National Bank Financial have tallied a collective provincial swing to date of more than $70-billion for 2020-21 and 2021-22. That money would have otherwise been added to already sizable provincial debts across Canada. This doesn’t mean things are in great shape, but the pandemic’s financial pain will not cut as deeply. And the swing gives provinces a fiscal flexibility they would not have otherwise had.
What the federal picture looks like is not yet clear. Unprecedented financial support from Ottawa is a big reason the provinces’ books, last year especially, weren’t torched. Ottawa took the blow. Canada’s debt has shot past $1.1-trillion, up more than 40 per cent from $765-billion in March, 2020. The federal 2021-22 deficit, in the April budget, was forecast at $155-billion, and the thought was that it would take until 2025 to get the figure down to a reasonable level.
Two reports of note are pending. The first is the federal public accounts – the official and final numbers for 2020-21. This is the same place where provinces saw a lot of improvement.
The next is the outlook, coming in the fall economic statement. Ottawa should also show a benefit from higher revenues. The Parliamentary Budget Officer suggested so in August; how big a bang is the question.
The financial picture is not unalloyed good news. The Bank of Canada in October cut its 2021 GDP growth forecast to 5.1 per cent from 6 per cent, and 2022 to 4.3 per cent from 4.6. But nominal GDP – which includes the effects of inflation – is rising fast, and this helps, not hurts, the fiscal situation for Ottawa and the provinces.
Meanwhile, even as real GDP growth is dialled back somewhat, the unemployment rate is down to 6.7 per cent, within one percentage point of its prepandemic level.
For the provinces, lower deficits mean lower debt-to-GDP ratios – a combination of a more economic growth and less debt. Ontario had thought its ratio would spiral past 50 per cent; instead, it should stay below 44 per cent.
In Alberta, where oil and natural gas money is pouring in, the province had warned its debt-to-GDP ratio could hit 25 per cent, but at last count it was looking more like 20 per cent. Likewise in B.C., the ratio next March had been forecast at 23 per cent but instead should come in at 18 per cent.
Lower debt burdens mean there is room to get things done. B.C., for instance, faces massive needs to rebuild the province’s infrastructure. This includes buttressing for climate change. The unexpected financial capacity is welcome. It also means the province has ample room to pursue major long-term projects, such as completing the SkyTrain to UBC in Vancouver.
In the darkest days of the long pandemic, the fiscal situation, present and future, was dire.
The pandemic’s not over and its many negative effects will be felt for a long time still. But seeing the provinces across Canada in better financial shape than expected is good news.
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