B.C.’s record deficit is a warning to all of Canada

Big deficits and rising debt are exactly how Canada drifted into the 1990s fiscal crisis

Every province and the federal government seem to be spilling red ink these days, but British Columbia under Premier David Eby tops the list with its record-breaking $13.3-billion deficit.

Maintaining the strength of public finances shouldn’t be a partisan issue. And, in fact, it isn’t. Governments of all political stripes have run big deficits, while others have paid down debt and run consistent surpluses. What sets B.C. apart today is not the existence of deficits, but their sheer scale.

When the NDP took office in British Columbia in 2017 under late premier John Horgan, public finances were, by and large, managed responsibly. Save for one deficit during the pandemic, the Horgan government posted surpluses every year it was in office and, arguably, left the province’s finances in even better shape than it had inherited.

But all of that changed when Eby took office in November 2022.

In three-and-a-half short years, Eby has turned surpluses into massive deficits, credit downgrades have become the norm, and B.C.’s debt is spiralling.

Last week, Finance Minister Brenda Bailey tabled a budget with a jaw-dropping deficit of $13.3 billion, representing 16 per cent of total government revenue.

Even though Bailey announced income tax hikes and a temporary end to indexing income tax brackets, the Eby government plans to post the largest deficit in B.C.’s history and has no plans to come even close to balancing the books over the medium term.

How did things get so out of hand?

The short answer is that spending has exploded under Eby’s watch.

In Horgan’s final budget, provincial spending stood at $69.7 billion. Four years later, spending is now anticipated to hit $98.8 billion.

That’s a 42 per cent jump in spending in just four years, or roughly 14 per cent per year. Such a massive jump represents roughly three times the rate of inflation.

The Eby government’s record is the most egregious, but governments across Canada have been on a spending binge of late. There isn’t a single government in Canada in office today that one can point to as an example of government restraint. Virtually every government is increasing government spending beyond the rate of inflation and plans to saddle future generations with mountains of debt.

While the fiscal situation across the country, including in B.C., may seem dire, there are lessons from Canada’s past that point to solutions. The short answer to today’s fiscal problems is that governments must cut spending. And, no, that doesn’t mean restraining the rate of spending growth. That means actual spending cuts.

Consider the case of the Romanow NDP government in the 1990s. Saskatchewan was facing a fiscal crisis and the province’s finances were out of control.

The Romanow government actually cut program spending by 14 per cent over the course of five years. This allowed the government to get the province’s fiscal house in order and get back to balanced budgets over the course of just three years. It also positioned the province for years of budget surpluses and paying down debt.

The Romanow government had the courage to actually tackle Saskatchewan’s looming debt crisis. This was done not through token gestures or modest reductions in the growth rate of spending, but through actually hard decisions and real spending cuts.

Not every government in Canada today is facing a situation as dire as Saskatchewan was in the 1990s. But, to return to the B.C. example, deficits that represent 16 per cent of government revenue are completely unsustainable and cannot be remedied without real spending cuts. Eby seems to be paying lip service to restraint, but B.C.’s fiscal forecasts are nothing short of a nightmare, with double-digit deficits as far as the eye can see. Many other provinces aren’t faring much better. And neither is the federal government.

If Canada’s governments don’t want to return to the debt crisis of the 1990s, action must be taken today to protect tomorrow. And that means that politicians must have the courage to pursue real spending cuts.

Dr. Jay Goldberg is a political scientist, a fellow with the Frontier Centre for Public Policy, and a columnist whose work is syndicated in the Toronto Sun and Winnipeg Sun. His policy analysis focuses on fiscal, trade, and energy issues.