When David Eby became B.C.’s Premier in November, politics was in flux. It was a time for new mayors and councils across B.C., elected by voters frustrated with a political status quo that saw little progress on the big issues facing people and communities. John Horgan may have been a popular premier, but even the people who liked the man were frustrated by expensive housing, difficulties getting health care, and even feeling safe walking the street at night.
As Eby reflected on his first 100 days in office, looked forward to a provincial election in 2024, and considered his budget, he had a choice to make.
Should he just try to get on base? Or should he swing for the fences?
For the non-baseball fans here, getting on base is the incremental approach. Go slow and steady. Chip away at your opponent. Look for openings and make progress where you can.
But swinging for the fences means you’re going all in. If we didn’t know it before – B.C. Budget 2023 tells us Premier Eby will be taking a bolder (and much riskier) approach to planning and spending than his predecessor. He’s swinging for the fences. On affordability, on health care, on mental health and addictions, and on public safety – he’s putting every bit of energy and strength he’s got to hitting the ball as far as he possibly can.
Here’s the thing about swinging for the fences. If Eby hits the ball with his first budget, the rewards can be great. It could mean progress on issues where previous premiers have fallen short. It could also mean success at election time. But if Eby misses, and he spends big on bold plans that fail to move the dial on key issues, Eby could whiff and strike out – and it would be game over for the B.C. NDP.
Will Eby be Joe Carter, who brought joy to Toronto Blue Jays fans with his unforgettable 1993 World-Series-winning home run? Or will he be British Columbia’s version of Casey at the Bat, who brought no joy to Mudville when he struck out?
That all depends on how Eby’s big budget bets work out.
1. Do voters want results on key issues more than they worry about fiscal deficits?
Premier Eby believes voters will give him a pass on running budget deficits ($4.2 billion in 2023-2024). The B.C. NDP’s political calculus here is clear. They believe voters’ desire for progress on B.C.’s big problems are greater than the desire for another balanced budget. There is good reason for the B.C. NDP to believe this. Local elections saw incrementalist mayors and councils bounced from office. Poll after poll tells the story of a public fed up with the status quo. What the equation fails to reflect is B.C. voters’ mistrust of the B.C. NDP’s fiscal management bona fides. For Budget 2023 to succeed, Eby will need to prove to voters that they can trust him with their hard-earned dollars, and we can see this pitch through the 2022-2023 surplus clocking in higher than expected ($3.6 billion surplus compared with initial projections of a $483 million deficit) and taxpayer-supported debt coming in $9.8 billion less than expected.
2. Are government’s affordability measures enough to make an actual difference?
First came the B.C. Affordability Credits, BC Hydro credits, and ICBC rebates. Now come a renter’s tax credit, free prescription contraception, and topped-up B.C. Family Benefit and B.C. Climate Action Tax Credit. Eby touts these moves as help for British Columbians struggling with the high cost of living. Governments rarely lose support when they send cheques in the mail. This time could be the exception. With the price of housing, gas, and groceries pushing many people to their fiscal limits, anything short of substantial help from government could have the opposite of the intended effect. Perception is important too. Tax credits don’t pack the punch of a cheque and can often go unnoticed. If voters only see a single cheque for $300 and miss the rest of the benefits, Eby’s efforts might not cut it. A miscalibrated, short-term affordability offer could position the government as out of touch with the depth of people’s affordability challenges. Eby needs to hope what he’s doing hits the mark and gets noticed.
3. Can better health care happen in 12 months?
The B.C. NDP hopes big investment in health will translate into big public approval on a file where as many as eight in 10 British Columbians say they are unhappy with the government’s performance. A projected $6.4 billion in new health spending over three years, including new money to attract family doctors and other health workers, build a new medical school and more hospitals, boost mental health treatment programs, and invest big in cancer care, is designed to shore up Eby’s support on a traditional issue of strength for the NDP. The challenge with health care is that improvement takes time. Investments made today may not bring progress for many years, particularly on the training and recruitment of health workers (where the budget earmarks $995 million in new spending over three years). Nor will it immediately halt media coverage of patients personally impacted by their health system. Will Eby’s investments in Budget 2023 bring change that voters will be able to see, touch and feel before the next election? The new premier hopes so.
4. Will B.C.’s economy hold steady amid great uncertainty?
COVID-19 notwithstanding, B.C.’s economy has performed well over seven years of B.C. NDP government. Employment is high. Growth is strong. Consumer confidence is high. Eby is hoping his fiscal plan will withstand the many threats facing B.C.’s economy. To say this will be challenging is an understatement. All signs point to a tough go for B.C.’s economy in 2023. Growth is projected at just 0.4% – well below 2022’s 2.8%. Inflation and interest rates remain high. Export revenues are down. Consumer spending is softening. Housing sales are declining. Key trading partners including the United States, China, and Japan are seeing weak economic outlooks themselves. A material decline in the state of the provincial economy would prove highly challenging for a government that’s viewed as stronger on social issues rather than economic ones, and that is already hearing from business and industry about challenges with B.C.’s competitiveness.
5. Will the B.C. NDP coalition stick together?
Finance ministers talk about how making budgets require tough decisions. What they really mean is no matter what you do, some people are going to be upset. One of those harder-to-please audiences can often be business and industry, a sector that’s on record expressing concern about the incremental costs of doing business under a B.C. NDP government, as well as the regulatory uncertainty on the labour and climate fronts. This group will be concerned about their general sense that there is little in the budget that addresses their core concerns, and specifically about what changes to B.C.’s carbon tax for industry will mean for them. For the NDP, that’s expected. The bigger risk for Eby is inside the B.C. NDP coalition. When he became premier, Eby was already on shaky ground with some public sector unions and environmental activists. Will the spending on health care, cost of living, housing affordability and public safety B.C. be enough to keep the various factions of Eby’s team together? Will the renter’s tax credit, free birth control, climate tax changes and increases to income supports be enough to satisfy, or will stakeholder concerns about progress on old growth and LNG bring the kind of unwanted fractiousness that undermines a government’s election hopes?
Time will tell. As always, H+K Strategies will be monitoring B.C. public affairs and will share our insights and counsel in the important days ahead.
Budget 2023 Economic + Fiscal Snapshot
B.C. Premier David Eby’s first budget, titled “Strong B.C. For Everyone,” increases government spending in 2023-2024 to address the government’s four key issues:
- $6.4 billion in new spending over three years, including:
- $1 billion to expand mental health and addictions services;
- $1 billion to improve access to family doctors and primary care, and;
- $995 million to attract and retain health workers.
Cost of living
- $1.3 billion in new spending over three years, including:
- A renter’s tax credit worth up to $400 a year starting in 2024;
- Free prescription contraception starting April 1, 2023;
- A 10% increase to the B.C. Family Benefit, and;
- Boosting the B.C. Climate Action Tax Credit to $900 per year from $500 to reflect carbon tax increases coming this summer.
- $462 million in new spending over three years, including:
- $230 million to hire 256 new police officers, and funding for two new programs targeting concerns about repeat offenders: the Repeat Violent Offending Initiative, and the Special Investigation & targeted Enforcement Program.
- $4.2 billion in new capital and operating spending over three years, including:
- $1.7 billion to buy land and build homes through the B.C. Builds and Building B.C. programs;
- $575 million to build new student housing across the province and;
- Changes to the property transfer tax for new purpose-built rental buildings;
- Of all the spending commitments outlined in the budget, housing comes with the fewest details. Government officials say details will come with the unveiling of a refreshed housing plan in the spring.
Economic and Labour Focus
On the economic front, the budget is focused on the labour market. New spending will support what the government calls its Future Ready Plan. It will add thousands of training seats and offer new micro-credentialing programs to help people get trained and working in high-demand fields. The strategy will also include a new grant for people who enroll in short-term training.
Carbon tax changes are on the way, including a $15-per-tonne increase to the tax that takes effect August 1, 2023. Government has also served notice that it will make changes to how the tax applies to large emitters next year. Government says that this group will now be subject to a “made-in-B.C. output-based price system” where “they will pay for emissions that exceed performance-based emissions limits.” The government says the charges are required to meet federal carbon pricing rules.
Surpluses and Deficits
Big, bold spending comes with a price tag. The result of the government’s tax and fiscal measures are lower than projected 2022-2023 surpluses and then deficits for the next three fiscal years. The 2022-2023 surplus is now projected to be $3.6 billion, down from second quarterly report projections of $5.7 billion. Expected deficits in the next three years will be $4.2 billion in 2023-2024, $3.8 billion in 2024-2025, and $3 billion in 2025-2026.
Looking at the 2023-2024 provincial balance sheet, total revenues are pegged at $77.7 billion. Expenses total $81.2 billion. The spending plan reflects $6.2 billion in forecast allowances and contingencies. That includes an overall forecast allowance of $700 million, climate and emergency contingencies of $2.3 billion, $1 billion in pandemic contingencies, and $2.2 billion for public sector labour costs.
Provincial resource revenues are trending down, to $4.7 billion in 2023-2024 compared with $6 billion in 2022-2023. Forest revenues account for $1 billion of the decline, with stumpage rates and logging tax revenue down from the high levels of 2022. Harvest volume decline is also a factor, with fibre supply shortage and old-growth logging deferrals the key factors. Natural gas revenues make up almost $200 million of the year-over-year decline. This reflects lower natural gas prices, partially offset by an improved outlook for natural gas production volumes.
Capital spending over the fiscal plan is projected to be $37.5 billion. This includes spending on new or improved housing, hospitals, schools, post-secondary facilities, transit, roads and bridges, with a more than $3 billion year-over-year boost in spending. The lion’s share will go to health care facilities including the St. Paul’s Hospital project in Vancouver, and transportation projects including the Broadway Subway and Surrey Langley SkyTrain Project. It also no doubt includes additional funds to cover cost overruns being driven by inflation and the rising cost of gas, supplies and labour.
Debt and Future Planning
B.C.’s taxpayer-supported debt is projected to be $63.7 billion at the end of 2022-2023. That is approximately $9.8 billion less than projected a year ago, the result of a quicker-than-expected economic recovery in some sectors and higher-than-projected income-tax revenues. The 2023-2024 taxpayer-supported debt-to-GDP ratio is expected to be approximately 18.9% and remain below 25% over the fiscal plan. Debt-to-GDP is a key metric used by credit rating agencies. If the agencies downgrade the province’s credit rating, it will reduce B.C.’s capacity to borrow and refinance its debt.
Go-forward economic projections are mixed. Unemployment rates are at near historic lows – which is good for workers but increases costs for employers and provincial initiatives. While B.C.’s economy expanded by 2.8% in 2022, growth is expected to slow to 0.4% in 2023 before inching up to 1.5% in 2024. The medium-term outlook estimates growth between 2.2% and 2.4% between 2025 and 2027.
In addition to Budget 2023-2024 spending, government is pushing out an extra $3.7 billion to close out fiscal year 2022-2023. This includes one-time investments in infrastructure, BC Ferries, food security, cancer care, Indigenous communities, and libraries. It also includes efforts to maintain B.C.’s rental housing stock, and cost-of-living credits for British Columbians.