The release of the B.C. government's Fall 2024 Economic and Fiscal Update shows the province’s fiscal challenges continued to deepen, with the 2024/25 deficit now projected to reach $9.4 billion. The deficit is now projected to be $1.5 billion higher than what was planned in February’s budget and $429 million higher than the First Quarterly Report update. At 2.2% of GDP, this is the largest deficit in B.C.’s history and proportionally the biggest of any province.

Despite initially budgeting for an unprecedented deficit, the fiscal shortfall has worsened due to additional spending in natural resources and economic development ($805 million), health ($706 million), and debt servicing ($236 million). Expenditures on debt servicing now accounts for $1 of every $20 the government collects in revenue.

At the same time, total government revenue is now projected to be $81.4 billion this fiscal year, or about $75 million below initial projections. Even though total revenue has mostly held up, several key revenue streams have underperformed. Corporate income tax is $1 billion lower than budgeted, sales tax revenues are down by $200 million, and resource revenues are almost $500 million below budget. These below budget results reflect the slowdown in B.C.’s economy and are a harbinger for softer revenue growth in the coming year.

The revenue shortfalls were largely offset by a $400 million payment from ICBC (which was not anticipated in the February budget nor in the Q1 Update), a $389 million unexpected gain from investment earnings, and an unplanned $300 million injection from self-supported post-secondary subsidiaries, BC Railway, and Columbia Basin power projects. In other words, the Fall Update reveals that tax and resource revenues fell short of the budget expectations, while the gap was filled by government tapping once more into ICBC reserves and the addition of unexpected investment earnings.

In addition, B.C.’s taxpayer-supported debt has reached $94.6 billion and now stands at 22.3% of GDP – or roughly $16,500 per British Columbian. The Business Council of British Columbia (BCBC) has long called for the government to adopt a fiscal anchor of keeping the taxpayer-supported debt level below 20% of GDP.

The Fall Update shows the province still has $3.9 billion in “contingencies” – money notionally allocated but without a specified purpose – for 2024/25. Refraining from spending these contingencies would result in the deficit being significantly smaller than currently planned, which would be a positive first step in shifting the province’s fiscal trajectory to a more sustainable path.

Ultimately, the Fall Update reaffirms growing concerns among the business community that B.C.’s fiscal position is increasingly precarious, marked by record deficits, rapidly ballooning debt levels, and escalating debt servicing costs. If the government is unable to shift the province to a sustainable and stronger fiscal footing, the province risks further debt downgrades and B.C.’s competitive position will erode further.

“The province’s fiscal challenges are not insurmountable but addressing them will require a renewed focus on establishing the conditions to attract more private sector investment and bolster economic growth while budgeting in a more prudent manner”, said Jairo Yunis Director of Policy at BCBC.