B.C.’s fiscal choices after the provincial election

At budget time in February 2026, a number of commentators expressed grave concerns about the growing size of B.C.’s budget deficit and overall provincial debt. B.C. is caught up in Canada’s trade war with the United States and is also experiencing a major downturn in the housing market. A deficit, given these headwinds, is not surprising—and even desirable to support demand in the economy.

On the other hand, the recent swing from relatively balanced budgets over the course of the business cycle to large annual deficits under the Eby government is notable. Added to a big increase in public capital spending, higher debt is leading to larger debt service costs. There is no reason to panic but B.C. is now at a point where provincial policymakers, and the voters who elect them, must make some difficult choices.

It behooves the parties running to be B.C.’s next government to explain clearly what choices they would make in Budget 2027. Parties may rhetorically prefer a lower deficit or even a balanced budget going forward, but that pathway entails spending cuts and/or tax increases, both of which would have economic and distributional consequences. With the high social costs of cutting back public services, targeted tax and natural resource royalty increases aimed at high-income individuals and large corporations is an approach that would minimize economic impacts and improve fairness in B.C.

Fiscal policy unpacked

A deficit in a government’s budget refers to the annual shortfall of government operating revenues (personal and corporate taxes, resource royalties and other fees) relative to expenditures (health care, education, etc.). A surplus is the opposite, when revenues exceed expenditures. The actual budget balance tends to fluctuate with the state of the economy, with a strong economy leading to surpluses and weak economy to deficits. This is desirable as the B.C. government plays a stabilizing (also known as counter-cyclical) role in the economy through its budget.

Figure 1 shows the trend for B.C. surpluses and deficits (above and below the line, respectively) going back to 1999-2000 and includes projections in the current three-year fiscal plan (in red). The budget includes $5 billion of extra padding in each year of the fiscal plan, known as “contingencies,” which I have removed. To make surpluses and deficits comparable over time, we adjust them as a share of B.C.’s GDP. 

While deficits for 2026-27 fiscal year and the next two years are within historical norms, and less than two per cent of GDP, the concern is more with the overall trend of successive deficits year after year. A “structural deficit,” one that is present in good times and bad, is problematic to the extent that growing debt service costs eat into revenues. Indeed, by 2028-29, B.C. will be paying almost 10 per cent of budget revenues in debt service costs, compared to an average of 4.6 per cent for the decade up to 2025-26. The historically low interest rates over the past quarter-century appear to be at an end, a global situation, but even locally, credit downgrades increase the cost of borrowing for the B.C. government.

Figure 2 shows total provincial debt broken down into: “taxpayer-supported” debt reflecting government operations, smaller Crown corporations and the capital spending above; and “self-supporting” debt of large Crowns like BC Hydro or the Insurance Corp of BC (ICBC), which have their own sources of revenue to repay debt. Again, these are after accounting for contingencies that artificially increase the debt numbers, and as a share of GDP. 

While self-supported debt has increased somewhat in recent years, the steep rise in taxpayer-supported debt is the most striking. Taxpayer-supported debt-to-GDP levels in the current fiscal plan are well above historical norms for B.C., and could hit 34 per cent of GDP in 2028-29, which would be more than double the level in 2022/23. The B.C. budget already plans a major reduction in taxpayer-supported capital spending by 20 per cent in 2028-29 relative to 2026-27.

B.C.’s growing taxpayer-supported debt includes substantial new borrowing in support of public infrastructure in education, health care and transportation. In other words, new and replacement schools and post-secondary facilities, new and replacement hospitals and cancer care centres, and new Skytrain lines in Metro Vancouver, the new Massey tunnel and 21 km of highway expansion in the Fraser Valley. 

It’s hard to argue with any of these expenditures in terms of meeting the needs of ordinary British Columbians, although there are several multi-billion-dollar examples of highway projects reinforcing auto-dependent suburban living. Nonetheless, these are all assets that have substantial economic value underpinning B.C.’s future standard of living. Just looking at the increase in debt associated with building them is seeing only half the picture. They also represent thousands of construction jobs. 

Finally, in addition to debt or liabilities, B.C. also has substantial financial and non-financial assets. Figure 3 shows B.C.’s net debt, which adjusts for financial assets, in comparison to other provinces. The picture is more reassuring, and B.C. clearly has a long way to go before it reaches net-debt-to-GDP ratios common to most other provinces. There’s still a lot of room before B.C. hit levels seen in Ontario or Quebec, although the gap has closed in recent years. Only Alberta fared better than B.C. on this measure. However, this is only a snapshot up to the end of 2024, and B.C.’s debt has increased since then. 

Statistics Canada makes one further adjustment in its inter-provincial comparisons to include non-financial assets (not shown). At the end of 2024, B.C. had a positive net worth of $25.8 billion, equivalent to six per cent of GDP. This would likely come as a surprise to most British Columbians given the drumbeat of bad news stories about B.C.’s debt. 

Looking to Budget 2027

While the current economic situation justifies some level of deficits and increased debt, B.C. will face a crossroads moment in the 2027 budget that will pose big challenges for whichever party forms government. Those choices risk further undermining the economy. 

Thus far, larger deficits have steadied B.C.’s economy and the province has weathered the trade and housing headwinds reasonably well. Real GDP growth is forecast to be just under one per cent in 2026 and 1.9 per cent in each of 2027 and 2028. That said, the provincial unemployment rate has been creeping up steadily from its most recent low of 4.2 per cent at the end of 2022 to 6.5 per cent in July 2026, and youth unemployment rates have been much higher. These stats would be much worse if the government arbitrarily tried to balance its budget.

Deficit reduction poses important trade-offs that are typically ignored by electoral platform rhetoric that promises to do the mathematically impossible: cut the deficit, reduce taxes, and increase or maintain public services. In fact, a choice to reduce the deficit must entail cuts to public spending and/or increases in taxes, both of which have consequences depending on how they are implemented. Neither choice is a popular one. 

Figure 4 shows that, at 21.4 per cent in 2026-27, B.C. public expenditures are up only modestly over recent historical levels. It’s hard to make the case that the province is radically over-spending, and the next two years already project a decline. The austerity of the Gordon Campbell years (2001 to 2011) is evident in the figure and a reminder of what cuts look like when we go from abstraction to implementation. 

Health care alone is 40 per cent of budget expenditures, followed by education at 20 per cent and social services at 10 per cent, so if a party is serious about deficit reduction from spending cuts, it’s hard to avoid these areas. The vast majority of B.C. government expenditures are the wages and salaries of professionals in these core public services. Cuts to expenditures inevitably mean public sector layoffs (disproportionately women in administrative and care work) or reductions in the quantity and quality of public services (with bigger impacts in rural, remote, and Indigenous communities). 

B.C.’s own-source revenues (i.e. not counting federal transfers) have been declining relative to GDP, with the current fiscal plan at historical lows. Asking the most affluent British Columbians to give more back should not be a hard sell—highers tax rates on top incomes, for example, or an increase in corporate income tax. The 2026 B.C. budget expanded the scope of Provincial Sales Tax to many uncovered services to raise more than $500 billion per year on a full-year basis, but Premier Eby promised to cancel the increase mere days before calling the provincial election. 

There is certainly potential to increase natural gas royalties, for which the province is getting a pittance. Royalties are a fraction of what they used to be 10-15 years ago, even as the province has overseen a massive increase in production. A new royalty framework has been in development to launch in January 2027 but has not been made public. Various reports suggest it will give even more of the economic value to the companies rather than the provincial treasury. 

Promises, promises

The fiscal bottom line is that politicians cannot have it both ways. If they want a lower deficit they need to articulate whether they would increase taxes or reduce spending to get there. The Conservative campaign, for example, has committed to no tax increases while wanting to reduce the deficit, which can only mean spending cuts. The NDP have promised  to reduce the deficit, and would raise $1 billion per year by increasing taxes on the top two per cent of British Columbians (only applied to individual income before taxes above $190,405). However, they also would cut provincial fuel taxes, which would cost $670 million full-year and would have a relatively stronger benefit for low- to middle-income households.. 

In the 2024 election, the NDP promised a large income tax cut ($500 for individuals and $1,000 for households) and an increase in the basic personal amount (i.e., the threshold for paying income tax). Neither happened, although the 2025 budget did eliminate B.C.’s consumer carbon tax, which led to the cancellation of the Climate Action Tax Credit  for low-income households and a modest increase in income taxes in the 2026 budget to cover some of the lost revenue.

We are mid-campaign and the promises are starting to accumulate but they may not add up at budget time. In the remaining time of the election campaign, voters need B.C.’s political parties to table costed platforms that put numbers to their promises—and provide clarity about their financial decision-making should they win the electoral prize.

About the author

Marc Lee

Marc Lee is a Senior Economist with the Canadian Centre for Policy Alternatives. Marc joined the CCPA’s British Columbia office in 1998, and is one of Canada’s leading progressive commentators on economic and environmental policy issues. From 2009 to 2015, Marc led the CCPA’s Climate Justice Project (CJP), which published a wide range of research on fair and effective approaches to climate action through integrating principles of social justice. Marc continues to write about climate and energy policy, strategies for affordable housing, federal and provincial budgets and macroeconomics. Marc has an MA in Economics from Simon Fraser University and a BA in Economics from the University of Western Ontario. Marc is a past chair of the Progressive Economics Forum, a national network of heterodox economists. He also served as a Visiting Professor at Simon Fraser University’s School of Public Policy in 2024 to 2025.