Title: B.C. Faces $11.6 Billion Deficit Amid Revenue Decline

The British Columbia provincial government is grappling with an $11.6 billion projected deficit, a significant shift from previous surpluses. While this figure may seem alarming, it represents 2.6 percent of the province's GDP, a level not unprecedented in B.C.'s history. The province experienced larger deficits in 1982 and 1991. Despite a sharp increase in debt, B.C. still maintains one of the lowest debt-to-GDP ratios in Canada.

As one of Canada’s wealthiest provinces, B.C. has the potential to manage this fiscal challenge by addressing its underlying causes. A key issue is the decline in the province's own-source revenue, which includes taxes, fees, and royalties. Over the past 25 years, this revenue has dropped from 19.2 percent to 15.4 percent of GDP. This decline translates to a loss of $16.8 billion annually, which could cover the current deficit and still allow for investments in essential services like child care and education.

Government spending in 2025-26 is projected to be 21.7 percent of GDP, slightly lower than the 22.1 percent recorded in 1998-99. The recent spending increases under the New Democratic Party (NDP) government have primarily reversed cuts made during the previous 16 years. Thus, B.C. is spending a similar share of its economy as it did a quarter-century ago, but is collecting significantly less revenue.

Several factors have contributed to this revenue decline. First, substantial tax cuts for individuals and corporations in the early 2000s were never fully reversed, which diminished B.C.'s fiscal capacity despite economic growth. Second, the elimination of the carbon tax has cost the province $2.8 billion this year, a figure expected to rise to $3.4 billion by 2027-28. The carbon tax, introduced in 2008, was designed to be revenue-neutral by pairing it with tax cuts and a low-income tax credit. However, the recent repeal only removed the low-income credit while maintaining the tax cuts, which primarily benefit higher earners.

Additionally, revenues from natural resources have plummeted from 2.5 percent of GDP in the early 2000s to just 0.6 percent today. This significant shift necessitates higher royalty rates, especially for non-renewable resources. Critics advocating for further tax cuts overlook the fact that B.C. already has some of the lowest personal income taxes in Canada for those earning up to $150,000, as well as a relatively low sales tax and average corporate tax rates.

To address B.C.'s fiscal challenges, experts argue that spending cuts are not the solution. Historical evidence suggests that underfunding public services and neglecting poverty issues can lead to greater economic and social costs. Instead, B.C. should consider progressive revenue measures to fund necessary public investments.

The province is currently facing record levels of income inequality, with the wealthiest 20 percent holding 53 percent of disposable income, while the poorest 20 percent possess only three percent. This disparity creates both a moral obligation and an economic opportunity for implementing progressive taxation. Potential revenue options include introducing additional personal income tax brackets with higher rates for high-income earners, reforming property taxes, increasing corporate income taxes, and raising natural resource royalties to better reflect public ownership.

Concerns about the deficit often serve political purposes, justifying cuts to public services and lower wages for public employees. While these measures may benefit the wealthy, they adversely affect the majority of British Columbians who rely on quality public services. B.C.'s fiscal challenges, exacerbated by external factors like trade disputes, are significant but manageable. To restore provincial finances, it is essential to rebuild the revenue base necessary for critical investments in affordable housing, public transit, mental health, child care, and environmental sustainability. Such actions will strengthen the economy and promote greater equity among residents.