Transcript
Speaker: I'm Jane Williams. This is the Red Eye Podcast. You can hear our live broadcast on Saturday mornings from 10 till noon at 100.5 FM in the Lower Mainland.
Speaker: In this episode, economist Mark Lee joins us with his thoughts about the BC budget, tabled on the same day that Trump imposed 25% tariffs on Canadian imports.
Speaker: BC Minister of Finance, Brenda Bailey, tabled the province's 2025 budget on Tuesday this week, the same day that President Trump brought in a 25% tariff on all Canadian imports.
Speaker: The tariff situation has since changed and will inevitably change again. But the fact remains that the NDP budget was tabled in a world that is dramatically different from when the provincial government was elected just four months ago.
Speaker: Finance Minister Bailey defended the projected $10.9 billion dollars operating deficit, saying it's necessary to respond to U.S. tariffs and not cut essential public services.
Speaker: Economist Mark Lee joins me this morning to give us his take on the budget. Mark Lee is senior economist with the Canadian Centre for Policy Alternatives. Hello, Mark.
Speaker: Hi, good morning. Good morning. The Conservative Party and the business lobby are making much of the size of the projected operating deficit.
Speaker: How big is it in the overall scheme of things? Well, the projected deficit for 2025-26 will be a record for BC at 10.9 billion.
Speaker: But of course, the economy is always growing. you know GDP is growing, everything is growing. So really what matters is how large is that deficit relative to GDP. And then because of the way we do the books in BC, we also need to add capital spending.
Speaker: So, you know the overall increase in public debt is about $23.6 billion. dollars And it pushes up our overall levels of debt relative to GDP to about 35%. Now, for most people, that's just all math.
Speaker: Really, what we're talking about is that bc is increasing its debt load, largely to respond to the Trump tariffs. We're anticipating negative hit to the economy over the coming months. And hard to say how that's all going to play out, of course, in a bit of an on and off again, situation with the Trump tariffs.
Speaker: But even that process, even if the tariffs don't necessarily manifest, it creates a climate of uncertainty, which undercuts business investment. So I think it's important to recognize that government is not acting like a household or business in this scenario, it's actually important for the government to be counter cyclical.
Speaker: And they do that by running deficits or increasing debt, essentially injecting money into the economy, and preventing what could be a small recession from turning into a full blown depression.
Speaker: What would happen if the BC government decided not to run a bigger deficit? I guess that's what you just said, it would turn into a very bad situation. Yeah, I mean, if we learn one thing in the 20th century, due to the impact of the Great Depression in the 1930s, it's that when there's a downturn in the private sector economy, you know, when consumption and investment fall, it's important for government to maintain the effective demand in the economy.
Speaker: And they do that by running a deficit, which essentially means that those other sectors of the economy want to run larger surpluses. households want to pull back and save money for a rainy day, similarly with businesses. And that is essentially accommodated by government running deficits.
Speaker: I understand that that BC's debt load actually still compares very favorably with other provinces. Yeah, I think that is a piece of good news.
Speaker: BC has long had an overall level of debt that's lower than most provinces, Alberta being the notable exception because it is fueled by oil revenues, as we all know.
Speaker: But yeah, i mean, BC's debt to GDP ratio, even that 35% of GDP also includes crown corporations like BC Hydro and ICBC.
Speaker: Those have their own separate revenue streams. So if we strip that out, it's actually lower still, more like 26%. If we were looking at comparables in say Ontario or Quebec, the debt to GDP ratio would be like closer to 50%.
Speaker: So BC is in a position where, particularly if interest rates are and remain low, we could stand to run fairly sizable deficits for a number of years before we'd be in a situation where we would need to be concerned about the sustainability of that debt.
Speaker: Now, you say that the budget's economic projections are strangely out of sync with the looming impact of tariffs on BC exports. Could you explain that?
Speaker: Yeah, this was something that really jumped out at me when I was pouring through the budget. isn't something that the government talked about in its narrative around the budget. But yeah, essentially, we anticipate that real GDP growth in 2024. And again, it takes a while for the beans to be counted and the final announcements to be made.
Speaker: But in 2024, our base assumption was that we had a you know modest 1.2% real GDP growth. But the Ministry Finance projections for 2025 is that will increase to 1.8%.
Speaker: eight percent So that doesn't seem consistent with what we know around the uncertainty in the economy and the threat of the Trump tariffs and all of that kind of stuff.
Speaker: How much does BC appear to be relying on the federal government to step up and take over some of the economic stimulus? Well, the tricky part is that we have not had a federal budget and we may not get a federal budget until much later in the year.
Speaker: If we have an election as anticipated in late April or into May, it could be quite a while before we see a federal budget tabled.
Speaker: Now, generally speaking, when we have a major economic shock that we're dealing with as a country, we think back to the experience during COVID-19 or the great financial crisis in 2008, 2009, the federal government did much more of the heavy lifting when it came to fiscal policy itself, running much larger deficits.
Speaker: And that would mean the province could ease back somewhat. But I think during COVID-19, the BC government did actually step in and had supportive fiscal policies that also provided additional stimulus to BC that helped us weather the storm better than most other provinces did.
Speaker: Now, the provincial government just came out of an election campaign. was like four months ago. What election commitments did the government walk back in this budget?
Speaker: Well, if you read the NDP's platform from October, there's not much that's in here from that. I mean, I think there are two major election promises that we don't see in this particular budget.
Speaker: The first is the promised grocery rebate, which was supposed to be $500 for individuals and for families. The government walked this one back a few weeks before the budget was tabled, but it would have cost almost $2 billion dollars per year after they made the changes for that to take effect. So my feeling all this whole time was that that grocery rebate was a little bit of a election gimmick.
Speaker: Doug Ford just did the same thing in Ontario. Prime Minister Trudeau was looking to do that federally, kind of a way of buying votes with voters own money. ah So dropping it is clearly the right thing to do and saving those funds to be better targeted in areas where we need them, particularly as the tariffs and other economic uncertainties playing out through the economy.
Speaker: The other big one is that there was a promise for the government to on the housing file to cover 40% of a mortgage. And this was going to be for up to 25,000 first-time This was something where you know the government would essentially lower the upfront cost of getting into the housing market for those buyers. And then when they sold their place or after a certain time, like 20 or 25 years, then that money would be repaid with some interest.
Speaker: This one doesn't appear at all in the budget. And And, you know, again, I'm not sure if this one is necessarily a great policy. It's certainly innovative as an approach to address affordability.
Speaker: But we'll have to wait till next year's budget to see if there's any news on this one. In December last year, the and NDP and the Greens signed an agreement which had some budget implications.
Speaker: Did the NDP come through with the commitments that they made in that agreement? ah Not really. you know There are some really interesting commitments in that agreement. 30,000 new non-market housing units over the mandate of the government, 7,500 in 2025 alone.
Speaker: so that didn't happen There is one area around housing where we did see them deliver on the commitment, which was to expand a provincial rental support programs. So there are two that are the the most notable. One's called the Rental Assistance Program, basically aimed at working poor families.
Speaker: And the other one's called SAFER or Shelter Aid for Elderly Renters, which is for seniors. So in both of those cases, the threshold to qualify was increased, and the average monthly supplement will be increased. So it's not a huge budgetary commitment. I think it's about $75 million dollars per year in additional supports. But that was a part of the agreement and should help ameliorate some issues for people who are facing the most dire circumstances in terms of their housing.
Speaker: The and NDP Green Agreement specifically mentioned implementing new transit routes around the province, which didn't get funded in this budget. What were they?
Speaker: Yeah, I mean, we had actually put out a report about a year ago called Connecting BC, which was arguing for a $20 billion dollars expansion plan around public transit across the province, both expanding local transit systems and connecting those systems through intercity or intercommunity rapid bus services.
Speaker: So some of that made it into the platforms and in the NDP Green agreement, they talked about a few key corridors for that on Vancouver Island, on Highway 16 in the north, which was infamously known as the Highway of Tears, Highway 1 out to the Fraser Valley, and then the Sea to Sky Corridor from Vancouver up to Pemberton.
Speaker: Essentially, none of those made the cut. There are a number of big capital projects in transit that are ongoing and starting up. The Broadway subway, obviously, the Surrey Langley Skytrain is now ah starting construction.
Speaker: But I think we're going to have to wait more for additional transit investments. So it's probably a missed opportunity to expand, you know, terms of capital projects, new investments that are going to get the province moving and that will benefit a lot of people in terms of mobility.
Speaker: What are you going to be watching for over the coming months in terms of the BC economy? Well, i mean, as noted earlier, I felt that the economic growth projections were a little too rosy.
Speaker: And I think part of that is because they don't make those projections the day of the budget. They have to make them in advance so that they can feed into the fiscal projections and then they can print the budget and all of that sort of stuff. So they may be taking a bit of a hedged approach about whether the Trump tariffs would happen and what impact they would have.
Speaker: And now that we're in this back and forth process around on again, off again tariffs, we don't fundamentally know how it's it's going to go. But my sense is that if the economic projections don't pan out and the economy is faring a lot worse by the summertime when the Ministry of Finance tables its first quarterly report. you know, the first major budget update based on new information that happens in September.
Speaker: And that may mean that the deficit pushes higher or that the BC government needs to go back to the legislature for additional funds in order to support adverse impacts from that.
Speaker: As it stands right now, there's $4 billion dollars out of the $10.9 billion dollars deficit that is earmarked as contingencies. So if the tariffs were to end tomorrow, and we go back to what business was back in January, essentially most of that $4 billion dollars would just go to reducing the deficit. So would come out more like $7 billion dollars instead of $11 billion. dollars So there's a lot of uncertainty at play right now. And I certainly don't envy the minister or the Ministry of Finance having to make fiscal and economic projections in such rough seas.
Speaker: Thanks so much for talking with me today, Mark. Good to talk to you, Jane. Take care. I've been speaking with Mark Lee, Senior Economist with the Canadian Centre for Policy Alternatives. You've been listening to the Red Eye Podcast, produced by an independent media collective based in Vancouver.
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Speaker: Thanks for listening.
