Seven key points from B.C. budget: deficit and tax hikes

British Columbia has recently unveiled its ambitious budget for the fiscal year 2026-27, a plan that is generating considerable discussion due to its projected record-breaking deficit and various tax increases. As the province grapples with economic challenges, this budget aims to outline the government’s priorities and strategies moving forward.

Understanding the projected deficit in B.C.

The budget anticipates a staggering deficit of $13.3 billion, marking a significant increase of $3.7 billion compared to the previous year, which had already set a record. This financial shortfall is projected to decrease to $12.2 billion in 2027-28, followed by a further reduction to $11.4 billion in 2028-29. The question arises: what factors are contributing to this escalating deficit?

Factors driving the increase in debt

As part of the budget, tax-supported debt is expected to rise to $142.5 billion by the end of next year. Since the NDP government took office in 2017, the debt has nearly doubled, indicating a trend of rising fiscal liabilities. Key points include:

• Interest payments on this debt are projected to cost the province $6.4 billion next year.
• In contrast, only $10.8 billion will be allocated for social services.
• The government insists that the debt remains manageable, noting that its taxpayer-supported debt-to-GDP ratio is still lower than that of several other provinces, including Quebec and Ontario.

Economic growth projections

The budget is based on relatively modest economic growth forecasts of 1.3% for 2026 and 1.8% for 2027. These figures are slightly below the expectations of the province's economic forecast council, which comprises economists from leading financial institutions. The council had estimated the previous year’s growth at 1.5%.

Tax changes outlined in the budget

To address the looming deficit, the provincial government is implementing several tax increases that will directly impact residents:

• An increase of 0.6% in income taxes on the first $50,000 of taxable income, resulting in an average additional tax burden of around $76 for taxpayers.
• Low-income families will experience a reduction in tax credits, with expected net tax credits dropping from $2,411 in 2025 to $1,623 in the upcoming year.
• Families with a net income of $100,000 will see their net provincial taxes increase to $4,601, up from $4,058 last year.
• The tax on residential properties valued over $3 million will increase, including a hike from 0.4% to 0.6% for properties above $4 million.
• The vacancy tax rate for foreign owners will rise from 3% to 4%.

Changes to public service employment

The budget details a plan to reduce the public sector workforce, which has seen significant growth—over 40% in the past decade. This includes more than 80,000 full-time equivalent positions added since 2020. The government's intention is to cut 15,000 positions over the next three years, primarily through attrition and potential incentives for early retirement. Here are some key points:

• This reduction represents a 3.4% decrease in the workforce.
• Projected savings from these cuts are around $625 million in the first year.
• The budget does not account for ongoing labor negotiations, which could lead to significant costs if public-sector wages exceed the planned increases.

Adjustments to capital projects

As part of fiscal prudence, the government has decided to "re-pace" several capital projects. Notably, initiatives like Phase 2 of the Burnaby Hospital and a student housing project at the University of Victoria have been paused, reallocating approximately $1.4 billion in the budget. Finance Minister Brenda Bailey emphasized that these projects have not been canceled outright but are being delayed.

Funding for health and education

The government asserts that the budget maintains essential public services, particularly in health and education, while aiming to reduce the deficit. However, ambitious spending targets have been set:

• Health spending is limited to an increase of 4%, the lowest increase in several years.
• Education spending growth is capped at 1.8%, the lowest increase since 2020-21.

These constraints reflect a delicate balancing act as the province grapples with the dual demands of fiscal responsibility and the need for robust public services.