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British Columbia Premier Christy Clark addresses the media at her office in Vancouver, B.C., Wednesday, May 10, 2017. Premier Clark narrowly won a minority government in Tuesday's provincial election.

JONATHAN HAYWARD/THE CANADIAN PRESS

British Columbia's Liberal government has overseen the strongest provincial economy in Canada, by a long shot, over the past two years. It has produced five balanced budgets in a row. It has given birth to a sovereign wealth fund that, for the first time, builds up a savings account for the province's financial future. The province is, by many measures, the economic envy of the rest of the country.

And the Liberals' reward for all this success? It barely limped back into office in Tuesday's election, in a minority government, assuming its razor-thin victory holds up to recounts (and that's far from assured).

If that's all the credit the Liberals get for their strong economic record, this may, indeed, be the beginning of the end of their 16-year political dynasty. Because the best of times may already be behind the province's economy; the road ahead looks considerably more bumpy.

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After expanding by a stellar 3.7 per cent in 2016, B.C.'s economy will be lucky to grow by much more than 2 per cent this year, according to economists' forecasts. It faces a slowdown in its housing sector, which has been a key growth engine in recent years. Its huge lumber industry is under threat of debilitating trade sanctions from the United States, by far its biggest market. And the emergence of its liquefied natural gas industry, which the Liberals not so long ago were touting as the vital fuel for the province's future prosperity, remains elusive, to put it kindly; many critics believe it has bumbled its way into pipe-dream territory.

The housing sector is the most immediate of these worries, as the air leaks out of the Greater Vancouver housing bubble.

Real estate and residential construction accounted for 22 per cent of B.C.'s gross domestic product in 2016, far greater than their 15-per-cent share of the national economy, and accounted for more than one-third of the province's economic growth last year.

The housing downturn could leave a sizable hole in the government's balanced budget. Property transfer taxes alone contributed more than $1.6-billion to provincial coffers in fiscal 2016-17. The slower economic growth accompanying a chilling of the housing market also implies a more broad-based slowing of government revenue growth.

But as much as the sector was an economic boon for the provincial government, it was a political minefield. Premier Christy Clark may be happy to trade a few decimal points in economic growth for more sanity in the marketplace, and a cooling of voter frustrations at the increasingly unlikely prospect that they could ever afford to own a home in their lifetimes.

The lumber dispute with the United States, while affecting a much smaller part of the B.C. economy than real estate has become, nevertheless poses a fiscal and political threat to the Liberal government. The industry accounts for a relatively modest 3 per cent of the province's GDP, but lumber accounts for more than 20 per cent of B.C.'s exports to the United States. It's also the lifeblood of many local economies (and their voters); the BC Lumber Trade Council estimates that there are 140 "forest-dependent" communities in the province.

The industry is reliant on wood it harvests from government-owned forests; the government collects about $850-million annually in taxes and fees for harvesting timber on provincial Crown lands. A downturn triggered by U.S. hefty duties imposed on B.C. lumber exports would deliver a direct hit to the government's budget balance.

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That would explain why the government mentioned the Canada-U.S. softwood-lumber dispute a half-dozen times in its February budget. It warned that the fallout from the dispute "could negatively impact investment, economic growth and provincial revenues."

Meanwhile, operating in a minority government, with the Green party holding the balance of power, could force some compromises onto the Liberals' economic game plan. The Greens aren't nearly so dedicated to annual balanced budgets as the Liberals (nor are the opposition NDP), and they favour increasing the provincial carbon tax that is already the steepest such levy in the country. The Greens also take issue with the such things as resource development, pipelines and LNG projects that are a big part of the Liberals' investment and growth vision. The danger is that, in clinging to power with the Greens' support, the Liberals may have to drift in a direction that would erode the province's tax competitiveness and resource investment climate.

On the other hand, it could stick to its guns and risk having its fragile minority government defeated, and another election called. But the longer its minority holds, the less sparkling the economic climate is likely to look to voters who have already proven very hard to impress.

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Columnist Gary Mason says British Columbia is now a divided province, with the Liberals finding support in the interior and north, while the NDP dominates in Metro Vancouver. But the latter region is growing while the interior remains stagnant, leaving a question over the Liberals' future election prospects.
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