New forecasts from the provincial government show the provincial deficit shrinking to $5.6 billion thanks to higher revenues including transfers from the federal government but also downgrade future economic growth.
Government’s fiscal update for the second quarter of 2023 also show declining exports in 2023 and fewer housing starts in 2024.
Finance Minister Katrine Conroy delivered the report Tuesday (Nov. 28) at the provincial legislature.
The report’s deficit number marks an improvement from the first quarter report when lower revenues from natural resources and higher costs for wildfires inflated the projected year-end-defict by $2.5 billion to $6.7 billion. But it also downgrades the ministry’s forecast for real GDP growth to 1 per cent from 1.2 per cent in the first quarter report. The ministry also downgraded the forecast for 2024 to 0.7 per cent from 0.8 per cent.
Conroy called B.C.’s fiscal situation stable, noting that the province pays three cents on the dollar in interest. She also defended the GDP projections against the charge of being low.
“I could call it low, but it is modest and stable,” she said. “What we have shown in the last six years, we have been able to bring forward policies that have given us a fairly positive economic strength within this province,” she said. “We know that potentially we are going to have a slowdown, just because of the global forecast (and) all the things like interest rates and things that are affecting the province. So we want to be prudent in our forecast.”
One potential factor behind the forecast is the export sector. Figures show exports down 16.1 per cent through the first nine months of 2023. Several key markets are down by double-digits, including the United States (minus 18.6 per cent), which absorbs 55 per cent of all provincial exports. Exports to global markets outside the United States fell by 12.9 per cent.
“Weaker global demand and lower prices for key commodities (like lumber and some forms of energy) continued to weigh on B.C. merchandise exports,” the report reads.
It also suggests that won’t change anytime soon. Most of B.C.’s trading partners are expected to experience “prolonged higher interest rates” in the face of high inflation, which will mean less demand for provincial goods.
“Furthermore, geopolitical uncertainties add risk to the global economic outlook,” it reads
Conroy delivered her report with the legislature’s fall session approaching its end Thursday. It will have witnessed the passage of multiple pieces of housing legislation, but the report offers what many would call a less-than-optimistic forecast when it comes to new housing starts as defined by CHMC: 4,000 fewer new homes next year than this year.
“I think our ministry is always fairly prudent with housing forecasts,” Conroy said, when asked whether the figures mean that B.C. is going backward rather than forward. “It also doesn’t take into consideration a lot of the legislation that we have been passing,” she said.
Housing created through short-term rental legislation and the expansion of the speculation and vacancy tax among other measures do not count toward new construction.
“We are optimistic (about) what the legislation is going to do for housing in this province,” she said. “As I said, the staff is prudent, Minister Kahlon and I are a bit more optimistic on what’s going to happen and how we are going to move forward with housing in this province. It’s a priority.”
BC United’s Peter Milobar acknowledged that the deficit forecast has improved. “But I would point out it is still a deficit, a record deficit in British Columbia,” he said. “Despite record revenues coming in, we’re still running a record deficit,” he added. “That’s a problem. Usually, governments run record deficits when the revenues are hurting.”
Milobar said the update includes several “warning signs,” adding that the government’s deficit will hurt British Columbians. While government might be able to borrow money at a lower rate, over-spending leads to higher inflation, which then leads to higher mortgage payments by way of higher interest rates to curb that inflation.
BC Green Party Leader Sonia Furstenau also found fault with the update in questioning how government is using its money.
“It is difficult to have confidence in a government that does not effectively manage its financial affairs,” she said. “Each year, this government announces unexpected surpluses, and yet we have seen a steady decline in basic government services. People in B.C. can’t count on health care when they need it, students continue to attend school in portables, and the social safety net is in tatters.”
Tuesday’s update comes after the federal government had issued its fall economic update. The federal government expects Canada to avoid a recession, while acknowledging slower growth thanks to “elevated” interest rates.
“Growth of 0.4 per cent is expected for 2024, compared to the 1.5 per cent projected in Budget 2023, with growth projected to rebound to 2.2 per cent in 2025,” it reads.
When media last week asked Conroy about the federal government’s prediction, Conroy said B.C. has one of the highest GDPs in the country.
“We also have what are some of the highest wages and we (have) one of the lowest unemployment. We always have to be concerned, but at the same time, we know that people are struggling and for us, we are not going to make cuts, where it hurts people, we are not going to increase taxes.”
That document also promised additional housing investments, including an additional $15 billion in loans for purpose-built rentals.
Housing Minister Ravi Kahlon welcomed that money, but also acknowledged that details about the announcement are still forthcoming, including the question of how much of this money will come to B.C. Kahlon also expressed concern that the money won’t be available until 2025-26.
“People are struggling and we need those dollars right now,” he said.