Last month, the Canadian Taxpayers’ Federation (CTF) took its “Debt Clock” on a tour of British Columbia to draw attention to the province’s mounting debt. Carson Binda, the CTF’s B.C. Director, said the tour encountered hundreds of British Columbians who previously had no idea the situation was so serious: “A lot of British Columbians are shocked and appalled.” The “clock” (more of a counter resembling a car’s odometer – though with more digits) placed the B.C. government’s debt at $112 billion – and rising by $53 million per week – placing it on-track to reach $123 billion by year-end and $145 billion by the end of 2025.
B.C.’s NDP government, Binda said, is adding more debt than “any other provincial government.” The debt currently amounts to $20,000 for every British Columbian, in addition to the $30,000 in per capita federal government debt.
“Shocked and appalled”: Carson Binda, B.C. Director of the Canadian Taxpayers’ Federation (CTF), spoke with hundreds of British Columbians during the advocacy group’s recent “Debt Clock” tour who were distressed to learn the province’s debt is at a record high – $112 billion – and rising by $53 million per week. (Source of photo: Prince George Citizen)And as the debt mounts, Binda notes, the province’s credit rating is “plummeting”. It has been cut three times in recent years, falling from triple-A to double-A negative. This makes lenders less willing to lend and leads them to impose a higher interest rate. The B.C. government is now spending $4 billion a year just to pay the interest on its debt. And that will undoubtedly rise because the government intends to borrow much more as annual spending rises further.
The Fiscal 2025 Budget
When the NDP government of Premier David Eby released its Budget 2024 in February, it forecast an annual deficit of $7.9 billion, based on revenue of $81.5 billion and expenditure of $89.4 billion. The direct accumulated debt was to rise from $71.9 billion to $88.6 billion during the fiscal year ending March 31, 2025. When the accumulated debt of provincial Crown corporations is added in, the accumulated debt will rise from $103.8 billion to $123.3 billion.
How does an $8 billion deficit drive debt up by $17 billion (or almost $20 billion counting Crown corporations’ debt)? Is this some of the “new math” being taught in B.C. schools? The answer is that the government’s capital spending budget is separated from its operating budget. The government is keeping two sets of books, although not in the usual sense.
Two Sets of Books
A previous Liberal B.C. government came up with the brilliant analogy that since citizens buy their houses on credit (through a mortgage), it therefore makes sense for a government to finance its long-term major purchases the same way. “Borrowing for capital projects finances the building of schools, hospitals, roads and other social and economic assets,” the government of Premier Gordon Campbell explained in its Budget and Fiscal Plan 2005/6 – 2007/8. “As these investments provide essential services over several years, the government, like the private sector, borrows to fund these projects and amortizes the costs over the assets’ useful life.”
The big difference is that individuals pay off their mortgage within their lifetime – sometimes in as little as 10 years – while a government can live on for centuries and keep right on borrowing more and more. While B.C.’s government transfers funds to its capital budget from its operating budget each year, this amount is almost always less than that year’s capital expenditures. So instead of gradually being paid down, the “mortgage” increases every year. In fiscal 2025 B.C. will spend $14.1 billion on capital projects but contribute only $6.7 billion from its operating budget, increasing the capital debt by $7.4 billion. This is a bit like a homeowner who just won’t stop adding new storeys, garages, swimming pools and patios to their house.
B.C.’s Liberal governments for years bragged about producing balanced budgets while actually running deficits; the operating budgets were balanced but the capital budgets went ever-deeper into debt. This was seen as such a great approach that, when the NDP ousted the Liberals in 2017, it continued the Liberal practice. Almost no-one in the media challenged it, either, instead meekly accepting the government’s assertion that the budget was balanced without questioning why the province’s accumulated debt continued to rise.
John Rustad, a former Liberal Cabinet member who now leads B.C.’s Conservative Party, says there is an argument for keeping operating and capital budgets separate, although doing so can also be misused to hide debt; the CTF’s Binda calls it “a tactic to pull the wool over the eyes of taxpayers.” (Source of photo: BC Gov Photos, licensed under CC BY-NC-ND 2.0)John Rustad, a former Liberal Cabinet member who is now leader of the Conservative Party of British Columbia, still defends the practice in principle. “People need to understand the difference between investing in the core things that are needed – transit, hospitals, roads, schools – and paying for the government’s pet projects,” he says in an interview. Rustad contrasts “investing in core infrastructure that’s going to be there, not just for this generation but also for the next generation and the generations to come” with what he calls “credit card type spending.” B.C.’s previous Liberal governments, he notes, incurred debt in the capital budget but kept their operating budgets in balance.
Rustad concedes that this practice could be used to hide debt, enabling a government to claim it was balancing the budget while adding billions of dollars in debt. The CTF’s Binda is more blunt, calling it “a tactic to pull the wool over the eyes of taxpayers.” These days, of course, even B.C.’s operating budgets are deep in deficit, and Rustad’s Conservatives are at least committed to wrestling those down and restoring B.C.’s finances to balanced operating budgets.
One of the B.C. Liberals’ goals was to restore ‘sound fiscal management’, including balancing the provincial budget within three years of gaining office, in contrast to the overspending and large deficits that had been incurred by the NDP from 1991-2001. This was, in a sense, a return to the norm in British Columbia.
As an aside, it should be noted that it has become increasingly difficult to research government financial statements. Formerly composed mainly of financial tables and graphs, federal and provincial budgets have become boastful and self-serving political treatises, often hundreds of pages long. The actual financial data are buried in a supporting document. Adding to the difficulty for researchers is that printed copies are no longer available in public libraries and even many university libraries (in order to save space), based on the assumption that they can be viewed online. But many older budgets have not been placed online; nothing predating 1995 is online for B.C., and even more recent years show gaps, with 2001-2002 missing entirely and 2002-2003 missing pieces.
B.C.’s Small-C Conservative Coalition and the Ideal of Balanced Budgets
The Liberal Party governed British Columbia from 2001 to 2017. One of its goals was to restore “sound fiscal management”, as its Budget 2002 put it, including balancing the provincial budget within three years of gaining office, in contrast to the overspending and large deficits that had been incurred by the NDP from 1991-2001.
This was, in a sense, a return to the norm in British Columbia. Since 1941, when the Conservative Party decided to support a minority Liberal government, the province has mostly been governed by a small-c conservative (or “right-wing”, to those on the left) coalition. Such a coalition was necessary, former Social Credit Premier W.A.C. Bennett explained, to keep the “socialist hordes” out of power.
The right-of-centre coalition took various forms over the years and proved remarkably successful, holding office throughout the ensuing three-quarters of a century except for the years 1972-1975 and 1991-2001 when the NDP were elected. A unifying principle has been sound public finance. W.A.C. Bennett boasted of having 20 balanced budgets in a row, from 1952 to 1972 (his son, Bill Bennett, would also be premier from 1975-1986). It’s true that the elder Bennett achieved this in part by allowing provincial Crown corporations to borrow funds, perhaps foreshadowing things to come; still, these debts remained very small by today’s standards.
The Liberal Party became the vehicle for B.C.’s centre-right coalition in the 21st century – at least so far – supported by voters who would back the federal Conservative or Liberal parties. Last year the organization renamed itself the BC United Party, partly to distance itself from the increasingly unpopular federal Liberals. In order to (it hoped) attract more urban voters, the party purged itself of “extreme right-wing elements.”
The new torch-bearer of fiscal responsibility: In 2001, newly elected Liberal Premier Gordon Campbell introduced the Balanced Budget and Ministerial Accountability Act, under which any cabinet minister failing to meet their department’s budget target would lose up to 20 percent of their salary. (Source of photo: John Biehler, licensed under CC BY-NC-SA 2.0)This move backfired severely when it expelled Rustad, MLA for the Nechako Lakes riding in the B.C. Interior, mainly for expressing views that were mildly skeptical of the prevailing climate change orthodoxy. Rustad subsequently joined the moribund Conservative Party of B.C. and soon became its leader. When he was joined by three (now four) other disaffected United Party MLAs, the Conservative Party attained official status in the Legislature. It is now rivalling the NDP in popular support, while BC United’s support has collapsed to below that even of the Green Party.
The Liberal-cum-United party’s woes can be traced at least in part to its abandonment of the fiscal formula that it first rode into office. In 2001, newly minted Premier Gordon Campbell introduced the Balanced Budget and Ministerial Accountability Act. One provision of this law stated that any cabinet minister failing to meet their department’s budget target would lose up to 20 percent of their salary. This approach was generally successful in producing balanced operating budgets.
By their 2017-2018 budget, the Liberals (now led by Premier Christy Clark boasted about their fifth balanced budget in a row and claimed that accumulated operating debt had declined to $5.2 billion in 2016-2017 and would drop to a token $1.1 billion by 2019-2020, almost eliminating the operating debt. (For comparative purposes between years and governments, this article compares budgets (i.e., year-ahead plans) rather than audited financial statements of actual revenues and expenditures for the previous year, which can be even harder to access.)
The Liberals’ impressive string of successes was, however, only possible because capital spending had been separated from the operating budget. The government continued to run individually small annual capital spending deficits, and B.C.’s accumulated provincial debt gradually increased. The Liberal era began in 2001 with total government debt at $36.4 billion. By the time of their last budget in fiscal 2018, combined operating and capital debt had reached $43.3 billion. The debt of Crown corporations, meanwhile had grown to nearly $27 billion, bringing total provincial debt to $69.8 billion. As large as these figures seem, however, far worse was to come.
The NDP under John Horgan
Returning to office in 2017, now under leader John Horgan, the NDP initially did not deviate greatly from Liberal practice. Budget 2018 budget called for revenue of $54.2 billion and spending of $53.6 billion, resulting in a small operating surplus, with a promise to eliminate the operating debt by year-end – one year earlier than the Liberals had promised. But the budget called for a “record” $15.8 billion in capital spending. Thus, total government debt was expected to rise to $69 billion. Budget 2019 forecast revenue of $59 billion and spending of $58.8 billion, resulting in another (slim) operating surplus. Again due to capital expenditures exceeding repayment of capital debt, total government debt was expected to rise to $72.5 billion.
Budget 2020 – announced on February 18 that year, less than a month before the World Health Organization declared Covid-19 a global pandemic – forecast revenue of $60.6 billion and spending of $60.4 billion, bringing B.C.’s accumulated operating surplus to $8.8 billion, an enviable position for any province to be in. Total government debt was expected to reach $70.6 billion.
Actual results that year, of course, proved wildly different as B.C., like governments throughout the Western world, spent almost without restraint. That was also reflected in the following year’s budget, which forecast a decline in revenue to $58.9 billion but a huge spending increase to $68.8 billion, for an operating deficit of $9.7 billion. That dwarfed any previous deficit in the province’s history and by itself wiped out the operating surplus. Combined with the previous year’s unbudgeted spend-a-thon, total government debt was expected to balloon to $102.9 billion in fiscal 2022 although, due to easing of the pandemic and improvement in the economy, it did not reach that level.
Budget 2022 forecast a big rebound in revenue – to $68.6 billion – but a further spending increase to $74 billion, resulting in an operating deficit of just under $5.5 billion. Total government debt was expected to reach $105.4 billion.
In 2022, the NDP simply annulled the Liberal-era balanced-budget requirement. From here on out, the province faces deficits without any credible end-point. The NDP’s fiscal 2025 budget projected an operating deficit of $7.9 billion and total debt rising to $123.3 billion over the year.
As B.C. emerged from the pandemic, government revenues continued to increase, but so did spending. Budget 2023 budget called for revenue of $77.7 billion and spending of $81.9 billion, generating an operating deficit of $4.2 billion. Total government debt was expected to rise to $107.9 billion.
The NDP under David Eby
Due to a serious illness, Horgan resigned as premier and NDP leader in late 2022 and was replaced by Eby. Since then, the NDP has abandoned all pretence of balancing the budget. In 2020 the government’s Economic Stabilization (COVID-19) Act had suspended the province’s balanced-budget law for three years. At the time, this move was similar to the Liberals’ authorization of deficit spending for two years during the global financial crisis that began in late 2008. After the two years were up, the Liberals dutifully went back to their balanced-budget law.
In 2022, however, the NDP simply annulled the balanced-budget requirement. From here on out, the province faces deficits without any credible end-point. As stated above, the NDP’s fiscal 2025 budget projected an operating deficit of $7.9 billion and total debt rising to $123.3 billion over the year. According to the same budget’s projections, the operating deficit next year is to be $7.8 billion, with the debt reaching $145.3 billion. Fiscal 2027 is to see an operating deficit of $6.3 billion and the accumulated debt increasing to $165 billion. That year, provincial government spending will be $92.7 billion. Compare that to the mere $25.6 billion in spending forecast in 2002, Gordon Campbell’s first budget.
Even worse, capital spending – which, recall, always runs a deficit – is likely to exceed even the ballooning government projections. This is because B.C. is allowing massive cost overruns in its capital projects. In June it was announced that the redevelopment of Richmond Hospital is now expected to cost $2 billion, $1.1 billion more than forecast in the hospital’s original 2020 business plan, while the Cowichan Hospital project has increased from $800 million to over $1.4 billion. Further, it was recently announced that two other major infrastructure projects – the Pattullo Bridge replacement and the Broadway subway/Skytrain extension – are a year behind schedule. B.C.’s Ministry of Transportation and Infrastructure claims to be managing these projects “within the current budget” but concedes, “With these schedule delays, there are budget pressures.”
Rustad believes the NDP’s current deficit forecasts are wildly optimistic. The government, he charges, has overestimated revenue because it has overestimated growth in B.C.’s gross domestic product (GDP). Three major construction projects – the Trans Mountain Pipeline Expansion, the Site C hydroelectric dam on the Peace River, and the LNG Canada pipeline and export terminal – are all finished or nearing completion, which will reduce B.C.’s GDP as those activities wind down. “My guess is that the deficit will be even larger when we close the books next March,” Rustad predicts. “I don’t see how they can even say this budget is credible.”
The NDP will have more than doubled total government debt from $69.8 billion at the end of the Liberal era to a projected $165 billion in fiscal 2027 – if they remain in office and things don’t get even worse. Government spending in the current NDP era has gone from $53.6 billion in Horgan’s first year as premier to a projected $92.7 billion in fiscal 2027 – a 73 percent increase.
Even more telling – and worrisome – is assessing the B.C. economy’s ability to support (and eventually repay) such levels of debt. In 2004, direct B.C. government debt (operating plus capital) was equivalent to 23.3 percent of the province’s annual GDP. By the last Liberal budget, it had actually dropped to 15.9 percent of GDP (25.6 percent when including Crown corporations). Under Eby, the direct debt is expected to rise from 17.6 percent of GDP in 2023 (25.4 percent including Crown corporations) to 27.5 percent of GDP in 2027 (35.8 percent including Crown corporations).
The debt is becoming ever-harder for B.C.’s government to manage, as this will also be the period in which the province’s direct government debt will come to vastly exceed annual revenue, rising from 95.1 percent of government revenue in fiscal 2025 to 151.2 percent in fiscal 2027. Moreover, there is a significant difference in circumstances. The Liberal government deviated from its balanced-budget policy to deal with the global financial crisis, while Horgan did the same to deal with the pandemic. Eby’s government, on the other hand, is running large deficits as a matter of ongoing policy.
Nor will the NDP leave things to the private sector when that is clearly the better option. In February the government announced a ‘BC Builds’ program to spend nearly $3 billion to help build 4,000 rental units for ‘middle-income households.’ That works out to approximately $750,000 for each one- or two-bedroom apartment.
Rustad says that while he didn’t agree with Horgan’s approach to governing, the previous NDP premier was “at least a bit more balanced.” Eby, though, has gone “off the deep end with his ideology and his authoritarian approach to governing.” Eby’s government, Rustad charges, is “more focused on socialist ideology than it is on people.” Besides paying extra billions to service the debt, the main increases in spending under Eby are for education and health care. Voters do say these are priorities, and it can also be argued that increases here are necessary to deal with the massive immigration enabled by the federal government. But there have not been similar increases in spending to address crime, which is also a growing problem. And the government is actually reducing support for forests, mining and agriculture, industries which might help grow the economy and thus government revenues.
Further, money is also flowing freely to what Rustad calls NDP “pet projects.” It funds free public transit for children under 12, free menstrual products in schools, free naloxone kits, and subsidizes purchases of electric vehicles and heat pumps. Nor is there any apparent effort to spend money efficiently. The health-care system’s bureaucratic costs have zoomed, Rustad charges; 40 percent of B.C.’s nurses now work in administration.
Nor will the NDP leave things to the private sector when that is clearly the better option. In February the government announced a “BC Builds” program to spend nearly $3 billion to help build 4,000 rental units for “middle-income households.” That works out to approximately $750,000 for each one- or two-bedroom apartment, a ludicrous amount especially when that merely “helps” get the job done. The vast majority of British Columbia households earn less than the “middle income” threshold of $191,910, and the government cannot possibly afford to build homes for all of them. B.C. is estimated to need as many as 700,000 new housing units, and for the B.C. government to subsidize all of those at $750,000 per unit would require $525 billion.
Bringing B.C.’s Debt into Public Consciousness
B.C.’s provincial election campaign officially begins on September 15 and voters will head to the polls on October 19. The pre-campaign period so far has focused on issues other than provincial finances: the steep cost of housing, the drug crisis, rampant crime and problems in the health care system such as long waiting times, staff shortages and emergency room closures. Eby’s attempts to dismiss the Conservatives under Rustad as a fringe party with “far-right extremist ideas” that wants to inflict “Republican culture war ideology” on the province have failed, as some recent polls show the Conservatives running neck-and-neck with the NDP.
The lack of focus on fiscal issues so far is unfortunate, because the next government will face an impending financial crisis. The CTF’s Budget Clock tour was intended to bring this issue to the fore and put pressure on politicians to take it seriously. One of the problems, the CTF’s Binda said, is that the media and politicians are accustomed to public debt, while ordinary citizens are getting “fed up with their taxes going up”, though only some of them connect this with the costs of servicing B.C.’s public debt.
The CTF’s tour began at the provincial Legislature in Victoria on Saturday, July 13 and reached Eby’s office in Vancouver the following Monday. The visit elicited no response from the premier. His office was actually closed on a Monday, which Binda snorts is “standard operating procedure for this premier.” By contrast, Binda notes, “dozens of politicians, including MLAs” showed up at stops on the Budget Clock tour.
Among these was Kevin Falcon, leader of the embattled BC United Party. His party posted a video of Falcon standing in front of the debt clock and stating, “In almost eight years, the NDP government has more than doubled the provincial debt to over $100 billion. They are running up the largest deficits in the history of British Columbia…In spite of all that spending…we’re getting the worst outcomes in health care, crime in the streets, the drug crisis. We’re the only party that’s said we’re going to balance the budget in our first term.” Previous to the Debt Clock tour, however, the BC United website said nothing at all about a balanced budget, stating only that “BC United stands for low taxes, smaller government, and responsible spending.” As of early August, the website was making the same balanced-budget promises as Falcon’s recent video.
The Conservative Party’s website has a similar fiscal thrust. Two of the party’s economic platform planks are:
“1. Lower Taxes, Smaller Government: The government is an inefficient delivery vehicle for services and its growth is cannibalizing private-sector job creation. Wasteful spending should be cut and the savings returned to taxpayers.
2. Balance The Budget: It is immoral (and financially hazardous) to continue living beyond our means and leaving our children with the bill. While not immediate, we will plan on balancing the budget.”
In spite of the issue’s acute seriousness, however, B.C.’s political parties have not devoted much time to the public debt. It is worth asking why this is the case. One likely factor is that it is a relatively recent phenomenon. While B.C.’s budgets were almost never truly “balanced,” the annual deficits were small and the accumulated debt remained manageable throughout the Liberal era. Understandably, British Columbians grew accustomed to not even thinking about the issue. In recent public opinion surveys ranking issues in importance, the provincial government debt commonly placed eighth, ninth or tenth.
Rustad admits that whoever becomes B.C.’s next premier will face a contradictory jumble of priorities, challenges and temptations. ‘Getting rid of an $8 billion deficit and giving significant tax relief,’ he says, ‘is not going to be an easy task.’
B.C. is also facing acute problems, such as those mentioned above, that have an immediate impact on people’s lives and are therefore occupying the public’s attention. Politicians are naturally gravitating to these topics rather than to complicated and indirect matters of fiscal responsibility – and whose answers may well lead in the direction of less spending in popular areas and even higher taxes, two things few politicians like to promise.
Rustad, in fact, was the only politician who agreed to be interviewed on this subject. No other reporter, he remarked, has even asked him about the deficit and debt in the 16 months he has been Conservative Party leader. Public and media indifference, he says, is “an unfortunate reality” because the debt “is at the core of everything else, all the other issues that we face.” The relationship between government debt and economic measures like GDP are “important ratios,” Rustad says, because “our GDP has flatlined. We have had growth but GDP per person has fallen behind, which has a direct impact on quality of life.”
B.C.’s falling GDP per capita “has a direct impact on quality of life,” says Conservative leader Rustad, who argues that the burgeoning provincial debt is “at the core of everything else, all the other issues we face.” (Sources: (graph) Business Council of B.C.; (photo) Victoria News)
Rustad admits that whoever becomes B.C.’s next premier will face a contradictory jumble of priorities, challenges and temptations. “Getting rid of an $8 billion deficit and giving significant tax relief,” he says, “is not going to be an easy task.” The Conservatives believe British Columbians “need tax relief.” And the debt needs to be brought under control. But the host of pressing problems means that no government can be “draconian in slashing services.” Much of the solution over the longer term, Rustad said, will rest upon getting B.C.’s economy “growing at a faster pace.” Average GDP growth in the Liberal era, he notes, was double the rate achieved under Horgan and Eby.
B.C.’s public debt has not yet reached the point it has at the federal level – just shy of 70 percent of Canada’s GDP as of March 2024. But if something dramatic isn’t done, that time is coming. Government needs to “cut up the taxpayer credit card” and “start paying down the debt if British Columbia families are ever going to prosper,” the CTF’s Binda concludes. It remains to be seen whether any of this seeps into public consciousness during the coming election campaign, or British Columbians remain lulled for now – only to wake up one day to an acute financial crisis.
James R. Coggins (www.coggins.ca) is a writer, editor, and historian based in Chilliwack, B.C.
Source of main image: Wirestock Creators/Shutterstock.
