Provincial Finances Continue to Deteriorate
The release of the B.C. government's 2025/26 First Quarterly Report shows the province’s fiscal challenges have continued to worsen. The 2025/26 deficit is now projected to reach $11.6 billion or 2.6% of the economy. It will be the largest deficit in B.C.’s history in dollar terms and as a share of the economy. It will also far eclipse the COVID-era emergency deficit in 2020/21 of $5.6 billion or 1.8% of the economy.
The deficit is projected to be $665 million larger in 2025/26, and $2.4 billion larger in each of the following years, than projected in the 2025 Budget. The deterioration mainly results from the elimination of the consumer carbon tax and weaker economic growth. However, those factors are partly offset by the province’s curious booking of a $2.7 billion accounting gain from the Canada-wide tobacco lawsuit settlement. Although B.C.’s share of the settlement totals $3.7 billion over about two decades, the government has recorded the present value as a one-time gain in 2025/26. Absent that accounting measure, this year’s deficit would be $14.3 billion, or very close to BCBC’s forecast of $14.1 billion.
Up until 2023/24, B.C. had a long track record of balanced budgets, low indebtedness, and top-tier credit ratings. Since then, in total, government operating expenses have ballooned by 19%, while revenues have grown by just 2% reflecting an anemic private sector economy. Massive increases in provincial debt are funding the gap. Debt servicing expenses now account for $1 of every $19 of government revenue.
Earlier this year, Budget 2025 included savings of $1.5 billion over the next three years. To put that in perspective, provincial operating expenditures are around $95 billion per year, so the savings plan amounted to an average of just 0.5% of annual spending. The government’s updated plan expands on those measures with program reviews, health authority restructuring, office space consolidation, and tightened public service hiring rules. Whilst we welcome the government’s nascent efforts to reduce the flow of red ink, the lack of detail and accomplishments to date fall short of the challenge. In our view, the province remains at risk of a fifth credit ratings downgrade in as many years.
The Report shows the province still has $4 billion in “contingencies” – money without a specified purpose – for 2025/26. Refraining from spending these contingencies would result in a smaller deficit and would be a first step in stabilising the province’s finances. Key to this will be keeping public sector wage negotiations conservative.
Ultimately, the 2025/26 First Quarterly Report reaffirms our concerns that B.C.’s fiscal position is precarious, marked by record deficits, ballooning debt levels, escalating debt servicing costs, and repeated downgrades from international credit ratings agencies.
BCBC has long called for the government to adopt a clear fiscal anchor. The timing for achieving it may need to remain somewhat flexible in light of external economic shocks, but the province should commit to a path that includes either balancing the budget within a specified timeframe, reducing debt-servicing costs, or returning taxpayer-supported debt to below 20% of GDP over time. A fiscal anchor, combined with a stronger focus on economic growth led by the private sector, would give people and businesses greater confidence about basing themselves in the province.