Article by Alex Hemingway, Senior Economist & Public Finance Policy Analyst, BC Policy Solutions
With a Trump trade war on our doorstep, the BC government brought forward its 2025 budget this week. The moment is uncertain and unprecedented for the country and its economy, and it’s more important than ever to build and protect our province with strong public investment.
The BC budget wisely avoided acceding to calls for austerity from the big business lobby, instead maintaining funding for public services and increasing it in some limited areas including healthcare. But it was also a missed opportunity, lacking major new initiatives and funding in areas like child care, housing, transit and poverty reduction, all of which would create long-term economic benefits.
The fiscal headline is that the budget projects substantial deficits over the next three years: $10.9 billion in 2025-26, $10.2 billion in 2026-27 and $9.9 billion in 2027-28. This could be compounded by a further loss of revenue as a result of a tariff war, up to $1.4 billion annually, the government estimates.
The deficit projections left some anti-government lobby groups apoplectic, calling the budget an “outright disaster.” But fear-mongering about the deficit is overblown and counterproductive.
Spending cuts would be economically damaging and irresponsible
The deficits tabled in Budget 2025 are appropriate and manageable, not a threat to BC’s long-term fiscal health. BC has among the lowest debt-to-GDP ratios of any province, leaving the government room to maneuver. The “interest bite” on taxpayer-supported debt in the BC budget remains reasonable today, though it is projected to rise from 4.9 cents per dollar of revenue in 2025/26 to 6.9 cents in 2027/28.1
The budget also builds in $12 billion in contingency funds over the next three years, providing room for costs associated with a tariff response, public sector bargaining, and other unbudgeted items.
Deficits should be addressed over time—not by cutting back on services but by growing the economy and taxing the rich.
Austerity and cutbacks would be disastrous—socially, economically and fiscally—in this moment when the country is facing economic warfare and threats of annexation. More than ever, BC needs to build up the capacity for strong collective action through our shared institutions of government.
Deficits should be addressed over time, not by cutting back on services.
With ongoing economic threats and a potential recession on the horizon, public investment will stimulate economic growth while households and businesses face significant pressures and uncertainty. Cutting back now would threaten to deepen any economic downturn, further reducing provincial revenues and worsening the fiscal situation while hurting British Columbians who rely on public services.
Many of the big challenges BC is facing today—in areas like child care, housing, health care, education, climate and poverty—have roots in earlier austerity and cuts to public services in the 2000s under the previous BC Liberal government. Despite some welcome reinvestment in recent years, there is a tremendous amount of work still needed to undo the damage, restore and strengthen public services and invest in new and upgraded infrastructure that was neglected for decades.
Robust social investments are a critical underpinning to a strong and prosperous economy. In turn, underinvestment in public services and infrastructure damages long-term economic prospects.
For example, investment in affordable child care gives a lift to young families and allows more parents, especially women, to participate in the labour force. This generates more economic activity, income and tax revenue. Tackling the housing shortage means working people can spend more of their earnings on goods and services in the community and less on rent to landlords. Strong investment in public transit connects people and has widely recognized benefits for economic growth and productivity.
The long-term solution to deficits is raising revenue
This doesn’t mean that BC should plan to run large deficits perpetually. Public investment should be sustained over time through economic growth and by increasing taxes on those at the very top.
But let’s be clear: BC doesn’t have a spending problem; we have a revenue problem.
In fact, as a share of GDP, provincial government operating spending still hasn’t fully recovered from the cuts of the early 2000s. Core provincial government staffing levels per capita also remain substantially lower than they were prior to those cuts, falling from 1.06 full-time equivalent (FTE) staff per 100 British Columbians in 2000 to 0.83 FTE in 2024 (up from a low of 0.71 FTE per 100 residents in 2006).2
In turn, provincial revenues as a share of GDP also dropped sharply in the early 2000s, in part due to tax cuts that disproportionately benefited the rich. And they haven’t recovered since. BC government revenues are projected to be 18.9% of GDP in 2025/26, down from 21.4% of GDP in 1999/00.
Taking in this broader fiscal context, it’s clear that BC has the ability to dedicate more of our total economic pie to public investment aimed at solving the difficult challenges we face. Good places to start would be increasing taxes on wealthy landowners, large corporations and the highest income earners.
While BC Budget 2025 is right to hold the line against cuts, bolder action is needed to build a stronger and more resilient province, setting BC up for success in an increasingly uncertain world.
Notes
1. Deficits in annual operating spending (which tend to get the biggest headlines) are one way that the provincial government accrues debt. The bigger source of debt is borrowing to make capital investments in things like schools, hospitals and transportation infrastructure. Borrowing is a sensible way to fund capital investment, particularly when the social and economic payoffs from the project are larger than the costs of the investment, including interest. The costs of capital projects are then amortized (i.e., spread over many budget years). Because infrastructure was neglected for decades, we are now catching up (at higher costs) and needing to take on debt more rapidly.
2. The full-time equivalent (FTE) figures, which come from Ministry of Finance reporting, is for core government staff and does not include staffing in SUCH sectors: schools, universities, colleges and hospitals.
