B.C. provincial finances precarious after just a few months of NDP governance

During the 2017 election campaign, now-Premier John Horgan (pictured above) successfully convinced many British Columbians that his NDP government would be different than the previous NDP regime, particularly with respect to the province’s finances. Unfortunately the first few months of NDP reign do not augur well for the future of government finances.

Consider just how markedly British Columbia’s finances have changed in the few months since the election and what that implies for the future. In the spring of 2017, the then-governing Liberals estimated revenues for the current year (2017-18) at $50.8 billion against spending of $50.2 billion, resulting in a total expected surplus of just over $600 million.

The NDP’s September budget update estimated that revenues would be higher than originally budgeted for by almost $1.6 billion. Put differently, if the now-governing NDP didn’t change the spending plans originally introduced by the Liberals in the spring, the estimated surplus of the government for the current year should have been roughly $2.2 billion. Instead, between July (when the NDP assumed power) and mid-September, the NDP introduced $1.7 billion in new additional spending for the current year.

And the push for higher spending was not just for 2017-18. The NDP government increased planned spending by $4.5 billion over the next three years—2017-18 to 2019-20. Put differently, this government has effectively increased spending by an additional $4.5 billion in the first few months of its term. (Thanks to higher revenue projections, the expected surpluses over this period are basically the same as those assumed by the Liberals in the spring.)

Critically, this material increase in spending does not include many of the spending initiatives outlined in the NDP-Green Party coalition agreement or the NDP’s campaign platform. For example, the NDP-Green agreement included a number of initiatives, which are largely absent from the budget update including:

• Invest in transit and transportation infrastructure;
• Long-term funding for transit;
• Build hospitals, schools and other infrastructure;
• Increased funding for health care, particularly preventative health initiatives and services;
• Introduce a new “essential drugs program;”
• New health spending focused on seniors, including home care;
• Additional funding for both K-12 and post-secondary education;
• New investments in childcare and early childhood education;
• A new pilot program on basic minimum income; and
• New investments in affordable housing.

In addition, while there’s a great deal of overlap between the NDP-Green Party agreement and the original NDP campaign platform, there are also several major commitments that seem either underestimated in the budget update or altogether absent. For instance, while the agreement calls for greater investment in childcare and early childhood learning, it does not specifically introduce the $10 a day childcare program proposed in the NDP platform.

The combination of immediate and marked spending increases, zero fiscal room for additional spending, and a large number of unfulfilled and expensive campaign promises means there’s a strong likelihood that B.C. will slip back into deficit (i.e. spending more than it raises in revenues) and/or experience additional tax increases, perhaps as early as next spring’s budget.

The Horgan government could have followed the fiscally responsible path as other NDP governments in the past including the Saskatchewan NDP in the 1990s and early 2000s. Instead, it has sent a troubling signal with its first budget that big spending, tax increases and (more likely than not) deficits are back as the governing fiscal policies of the province.

Large spending increases financed by higher taxes and deficits eerily echo the 1990s when the NDP last governed the province during what was rightly characterized as the “lost decade.” Let’s hope the euphoria of returning to power subsides and more reasonable policies prevail as the government begins work on its 2018 budget.