B.C. expects $12.5-billion deficit with continued pandemic spending
The coronavirus pandemic has cost B.C. $12.8 billion, wiping out Budget 2020’s $227-million surplus.
The NDP is now projecting a $12.5-billion deficit for the year, although how the numbers shake out will depend on how the global pandemic proceeds.
Finance Minister Carole James called the deficit “staggering” but said the province has made “extraordinary investments” to support B.C. residents and businesses through the crisis — and plans to continue to spend in the months ahead.
“We are … going to continue to provide the supports that are needed,” James said when asked if the NDP is looking at cuts to staunch the financial bleeding. “Now is not the time to be looking at cutting programs or services. Now is not the time to make life more difficult for families.”
Deficit split between lost revenue, pandemic response
Revenue losses account for just over half of the projected deficit at $6.3 billion, mostly because of an expected hit to income tax revenues and PST.
With retail sales forecasted to drop by 15.9 per cent this year, the province is expected to bring in $1.3 billion less in sales tax.
The province is spending $6.26 billion this year to fight the pandemic and its impact on the economy, mostly through its $5-billion COVID-19 action plan. Outside of that, Tax deferrals and late payment penalty waivers have cost $762 million and the one-time, five-fold increase in the province’s Climate Action Tax Credit cost $500 million.
Health-care spending in response to the pandemic — including testing, contact tracing and supporting long-term care facilities — will account for more than $1 billion of the $3.5 billion earmarked for immediate relief measures while the one-time, $1,000 Emergency Benefit for workers is projected to soak up another $1 billion. So far, 600,000 people have received the supplement.
The province also plans to spend $350 million on its $300 monthly top-up for social assistance recipients and $150 million on the rent supplement, which is set to run through August.
The province is still examining whether to further extend the supports it has put in place so far — as well as whether to forgive tax deferrals currently set to come due by the end of the year.
Liberal Leader Andrew Wilkinson castigated the NDP for lacking an economic recovery plan four months into the pandemic. Thousands of B.C. businesses will have been forced to shutter by the the fall, he told reporters, noting that many federal support programs are currently set to wind down then as well.
“We’re looking at a very dark Christmas, and we just see no plan at all from the NDP, “ Wilkinson said. “When we’ve been so successful combatting COVID-19, we should be more advanced in our recovery plan.”
He said the government should not be “waiting for the situation to resolve itself” before rolling out a build-back plan.
Unemployment cuts deep, home sales down significantly
Pre-pandemic, B.C. had long boasted one of the lowest unemployment rates in the country but is now projecting unemployment will remain in the double digits this year at 11.3 per cent. In 2021, the province is projecting an unemployment rate of 8.9 per cent.
The wholesale and retail sector has been hardest hit, shedding 47,700 jobs between February and June. B.C.’s hospitality sector lost 44,900 jobs in the same time frame and, with international tourism unlikely to rebound in the near term, is expected to be slow to recover.
Overall, household incomes in B.C. are expected to drop by 3.9 per cent this year.
Home sales plummeted by more than 45 per cent in May but ticked up slightly in June. However, home sales could end up down by 27.6 per cent this year before rebounding by 9.3 per cent in 2021. The average home price in the province softened by four per cent between February and May.
GDP drop will be worse than 2008, 1982 recessions
The finance minister emphasized the high level of uncertainty in the province’s fiscal projections at this point, warning that much could change in the coming months.
“That includes everything from future outbreaks here in B.C., but obviously in other places as well, because that impacts us here as a province,” James said.
B.C. is projecting a 6.8 per cent drop in GDP for 2020, followed by 3.1 per cent growth in 2021 — assuming labour force recovery continues to be modest, government support spending remains “measured” and pandemic management measures continue for the foreseeable future.
During the 2008 crash, the province saw GDP drop by 2.4 per cent, while the 1982 recession brought a 6.4 per cent contraction.
The finance minister touted B.C.’s triple-A credit rating as a point in the province’s favour.
However, the debt-to-GDP ratio is expected to climb from 15.5 per cent earlier this year to 22 per cent by next year. Debt servicing is expected to cost $176 million.
James is set to release the province’s public accounts on August 31 and said an economic recovery framework will be released in September, when B.C.’s first quarterly results are also set to be made public.