British Columbia's finances have taken a dramatic turn under the NDP government, shifting from a projected $5.7 billion surplus to a record $11.6 billion deficit in just three years. This financial reversal raises questions about the province's fiscal management and future economic stability.

When Premier David Eby assumed office in 2022, B.C. was on track to achieve a significant surplus for the 2022-23 fiscal year. Eby faced a decision: allocate the surplus to one-time programs or use it to reduce the province's debt. His predecessor, John Horgan, had previously engaged in deficit spending during the COVID-19 pandemic but managed to maintain balanced budgets in other years.

Eby opted to invest the surplus in addressing pressing issues such as the housing crisis and homelessness. By the end of the fiscal year in March 2023, the surplus had dwindled to $704 million, which was directed toward debt repayment. However, the financial outlook worsened significantly, with the province recording a $5.6 billion deficit the following year and a $7.3 billion deficit for the 2023-24 fiscal year.

The latest announcement indicates that B.C. is now projected to face an unprecedented $11.6 billion deficit this year, exceeding the earlier estimate of $10.9 billion. Economists predict that the situation may deteriorate further, with a projected $12.6 billion deficit anticipated for the 2026-27 fiscal year.

Experts attribute the record deficits to a combination of rising government expenses and declining revenues. In the 2023-24 fiscal year, government spending increased from approximately $80 billion to $84.6 billion, while revenue slightly decreased to $79.6 billion. Last year, spending growth outpaced revenue, which only grew by about $5 billion, reaching just over $84 billion. This year, expenses are expected to rise further to $94.8 billion, while revenue is projected to fall to $83.2 billion.

Bryan Yu, chief economist for Central 1 Credit Union, noted that much of the spending increase has been focused on health and education. "I believe the average growth in the health sector has been somewhere around five percent per year, so it’s been a pretty substantial gain in terms of where we’re putting our dollars," he said. He also pointed out that the public sector has expanded, while revenues from the private sector have declined due to challenges in the housing market and tariffs affecting natural resource sectors.

Jairo Yunis, director of policy for the Business Council of B.C., criticized the province's environmental policies and high personal income tax rates for contributing to the struggles of the private sector. "Our tax system is wildly uncompetitive, not only compared to other provinces, but also to U.S. states," he stated. He warned that the current fiscal situation suggests that taxes may need to increase in the future.

Economists express concern that the deficit could become structural, making it difficult to resolve without significant cuts to essential programs. UBC economist Tom Davidoff argued that cutting the carbon tax, which is expected to reduce revenue by $2.8 billion this year, was a fiscal misstep. He suggested that raising property taxes while reducing spending on affordable housing could be potential solutions. "There’s room in terms of property taxes, politically challenging, but our property taxes are too low," he said.

Conversely, Yunis believes the province should lower taxes and reduce the public service, asserting that the government's plan to cut spending by $1.5 billion over three years is insufficient. He advocates for a return to a fiscal anchor approach, focusing on reducing the deficit over time and prioritizing the private sector economy.

The implications of these deficits are significant, particularly regarding the province's borrowing costs. Since Eby took office, B.C.'s debt has surged from $89 billion to a projected $155 billion, leading to several credit downgrades that have increased borrowing costs, expected to reach $5.1 billion this year. Yu emphasized that this situation will limit the funds available for public services, stating, "Five cents of every dollar of revenue will have to go to service that debt as well going forward."