Good afternoon,
Earlier today, B.C. Minister of Finance Carole James released her first
economic and fiscal update
since February’s 2020 budget was introduced, showing for the first time the impact the unprecedented COVID-19 crisis has had on the province’s finances.
February’s
Budget 2020
was originally tabled as a balanced budget with an operating surplus and what Minister James called “ample prudence”.
As a result of COVID-19, the B.C. government is now forecasting a $12.5 billion deficit.
This deficit is comprised of $6.31 billion in lost revenue and $6.26 billion in pandemic-related spending.
Minister James said that today’s data on the state of the province’s finances, investments, revenue, and deficit will inform the next stage of economic recovery planning. Minister James also stressed that the projections released today are based on a snapshot in time, and that there is a great deal of unpredictability in the current situation, meaning numbers could change.
On average, private sector forecasters expect B.C.'s real GDP to decline by 5.4% in 2020, which is better by comparison than the decline of 6.6% on average across Canada. This figure ranks B.C. fourth among Canadian provinces.
The Ministry of Finance’s own projections are slightly more prudent, predicting a 6.8% decline in real GDP in 2020.
Minister James reiterated that, despite the bleak financial projections, this is not the time to cut spending, as “supports are critical for building back the province.” As such, the capital investments and projects committed to in
Budget 2020
will proceed as planned, and Minister James noted she and her colleagues will consider accelerating some of those projects.
She also said the province does not anticipate any tax increases to deal with the financial crunch brought on by COVID-19.
The following are high-level takeaways from today’s fiscal update:
- A total operating deficit of $12.5 billion, which is comprised of both pandemic-related spending and losses in revenue:
- $6.31 billion in lost revenue - predominantly PST ($1.35B), personal income tax ($999M), corporate income tax ($973M), and Crown corporation net income loss ($882M)
- $6.26 billion in pandemic response spending - includes COVID-19 Action Plan ($5B) and business relief and tax measures ($762M)
- Current projections predict a 3.9% drop in household income in 2020.
- Ministry of Finance projections have B.C.’s real GDP declining by 6.8% in 2020, and then growing 3.1% in 2021.
- Private sector forecasters, by comparison, are calling a real GDP decline of only 5.4% in 2020.
- Taxpayer-supported debt (which excludes commercial debt owed by Crown corporations) is expected to increase to $61.9 billion by the end of 2021, compared to the $49.2 billion estimate in Budget 2020.
Today's Fiscal Update: Context
In February, the B.C. government introduced a balanced budget that was unable to get passed in the Legislature before COVID-19 forced a recess. As a result,
Budget 2020
is currently being debated by MLAs, and the government intends to pass it before the current session ends on August 14, 2020.
However, the fiscal plans of
Budget 2020
of course did not account for any COVID-19-related spending. Instead of going back to the drawing board on
Budget 2020
when the pandemic hit, the provincial government chose to pursue response efforts in a parallel process which was designed to build on the federal government’s COVID-19 economic plan.
These efforts included the $5-billion
B.C COVID-19 Action Plan
, which was funded by an interim supply bill passed in an emergency sitting of the House on March 23, 2020. The
COVID-19 Action Plan
included enhanced tax credits for families and individuals; a one-time, tax-free benefit for unemployed workers; temporary rent relief; disability and income assistance supplements; and $1.5-billion earmarked for stimulus and economic recovery.
The $5-billion
COVID-19 Action Plan
was not included in
Budget 2020
, so today’s fiscal update provides a more complete financial picture as the province moves into the economic recovery phase of the pandemic.
Economic Recovery
Economists predict that
B.C. is in the best shape for recovery
when compared to other provinces across Canada, but the provincial government has been clear that the success of recovery will depend on containment of COVID-19 going forward, particularly if we experience a second wave of the virus in the fall.
Minister James reiterated today that the planning for the allocation of the $1.5 billion in economic recovery funding is underway, being informed by data coming in and consultations with business, labour, First Nations, and non-profits through the
Economic Recovery Task Force
,
which continues to meet bi-weekly, along with ongoing Cabinet outreach and meetings.
Economic recovery measures and a “recovery framework” are expected to be announced in September.
Minister James has also described next February’s
Budget 2021
as a recovery budget.
Opposition Reaction
Following today's fiscal update, BC Liberal Leader Andrew Wilkinson criticized the government for having “no economic recovery plan”. Wilkinson said “a deficit is not at all surprising, but what is surprising is the fact that John Horgan and the NDP still have no economic recovery plan and insist that there will be no change in the government spending priorities they laid out before the pandemic. This is simply unsustainable.”
Interim B.C. Green Party Leader Adam Olsen called for the government to move forward with spending the $1.5 billion set aside for recovery and ensuring resiliency in B.C. businesses.
Fiscal Update Details
Today’s update by Minister James offered both a
look back
at the impact of COVID-19 in B.C., and a
look ahead
at projections for the province's finances as we move into the economic recovery stage. The note below has been separated into these two sections.
Looking Back – COVID in B.C.
Impact on Labour Market
- 235,100 fewer jobs in June compared to February;
- Unemployment rate (13.%) is at its highest since 1987, up from 5.0% in February 2020; and,
- Job losses occurred in virtually every sector of the economy, with only Forestry, Mining, Quarrying, Oil & Gas; Utilities; and Professional, Scientific & Technical Services seeing total positive change over the period.
Impact on Consumer Spending
- B.C. nominal retail sales declined by 20.7% in April compared to March, which was the largest monthly decline on record (data going back to 1991);
- Overall, B.C. retail sales were 23.6% lower in April compared to February 2020; and,
- The only sectors that saw an increase in consumer spending during this period were Building & Gardening Supplies (3.0%) and Food & Beverage (17.4%).
Impact on Housing Market
- Home sales have dropped by 45.4% from February to May;
- Average sale prices are down 4% (February to May); and,
- Homebuilding activity continues to be resilient, with housing starts reaching 39,089 in June, compared to 42,225 in February.
Looking Forward – Projections
Alongside data from the last several months, the Ministry of Finance presented an economic outlook for 2020 and 2021. Minister James noted that the economic scenario she presented is not a typical forecast, and instead is a “snapshot, subject to considerable uncertainty and revision”. There are many elements of uncertainty, chief of which is the possibility of a future outbreak in B.C. or among the province’s trading partners.
The Ministry of Finance’s economic scenario includes the following top-line highlights:
Real GDP
- In the Ministry of Finance’s scenario, B.C. real GDP will decline by 6.8% in 2020, and then grow by 3.1% in 2021.
Labour Market
- Job losses that have occurred in B.C. are not expected to be fully recovered this year.
- The scenario predicts employment in the province to decline by 9.8% in 2020, which corresponds to an annual loss of 252,000 jobs.
- The scenario then predicts an increase in employment of 4.4% in 2021, representing an annual gain of 102,000 jobs.
Consumer Spending/Household Income
- The current scenario predicts a 3.9% drop in household income and a 15.9% drop in retail sales in 2020.
Corporate Profit
- The current scenario predicts B.C. corporate profits (net operating surplus of corporations) will decline by 36.4% in 2020, before recovering by 16.3% in 2021.
Housing Market
- The scenario predicts a 27.6% decline in residential sales in 2020, followed by possible growth of 9.3% in 2021.
- The scenario predicts 27,000 housing starts in 2020, and 29,000 in 2021 (compared to 35,021 and 32,040 forecast in Budget 2020).
Additional Resources
If you have any questions or require further analysis on today’s fiscal update, do not hesitate to contact us.
Thank you on behalf of the Earnscliffe team!
