B.C. economists disagree about the effects of the federal budget on Canada’s westernmost province.
David Williams, vice-president of policy with the Business Council of British Columbia, questioned the federal budget’s “lack of fiscal discipline” with Canada set to run deficits of around $40 billion each year for the next three years. “These deficits mean that households and businesses are going to face higher inflation and interest rates than they otherwise would,” Williams said.
More spending drives up costs and makes cuts in the interest rates less likely. For B.C., this could be problematic.
“B.C. households carry the highest debt in the country because we have leveraged our real estate sector to the hilt,” Williams said.
While 13 per cent of mortgages are due to be re-financed this year, that number raises to a quarter in 2025 and a third in 2026, he added.
“B.C. faces some pretty difficult adjustments over the next few years, when all those mortgages come due for re-financing and that’s not being helped by the actions of the provincial government or the federal government by running up these big tabs,” Williams said.
Within this context, Williams criticized the provincial government’s record-setting deficit of nearly $8 billion.
Deficits divert resources away from things like health care toward interest payments. He also expressed concern about the long-term direction of both the Canadian and provincial economies in the face of rising costs and what Bank of Canada deputy governor Carolyn Rogers last month called a “productivity” emergency.
B.C. is also starting to lose its “best and brightest” to other provinces including Alberta after having been a “province of opportunity” for two decades, he added in pointing recent figures that show more residents left B.C. for the rest of Canada than arrived last year.
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Marc Lee, senior economist with the B.C. Office of Canadian Centre for Policy Alternatives, called the federal budget “decent” in praising its emphasis on housing, some of its social policies and the higher capital gains tax on 0.1 per cent of taxpayers.
“There are a lot of things I like,” he said, adding that the federal government is not doing enough in those areas. “But that’s why I’m the left-wing think tank and they are the governing party.”
Lee thinks the federal budget will “somewhat” help B.C. “They (Ottawa) are running a deficit, so it’s mildly stimulating in terms of its overall fiscal orientation and the B.C. budget is as well,” he said. “I think that’s appropriate given the state of the economy.”
But the impact of this budget won’t be felt for several years as the funding rolls out, he added.
Looming behind these disagreements is the question of what has caused the recent run of inflation, its effects and the influence of politics.
While global events always create uncertainty, Canada’s economic fundamentals have been tracking in the wrong direction before and after the COVID-19 pandemic, Williams said in pointing to Canada as a global laggard not just now, but for decades to come.
Lee, meanwhile, sees inflation as “largely” the result of global events like war in the Ukraine and supply chain issues. He also does not think the federal budget will have an inflationary impact with unemployment at around six per cent and limited growth.
Lee acknowledged that higher interest rates raised the cost of servicing deficits and debts and that money could be spent elsewhere. “But…in historical terms, we’re well within anything normal,” he said. “There’s nothing really to be worried about it yet.”
As for concerns about B.C.’s long-term economic future, Lee said a “lot of that comes down to housing,” noting that much of the wealth creation in B.C. over the last 20 years has come from the appreciation of real estate.
“But…for all of the people, who have made hundreds of thousands or millions in real estate, there is a whole generation of people on the outside, who can’t get in unless their parents are already in and give them the money to enter the market.”
Ultimately, both Lee and Williams think this federal budget is an attempt by the federal Liberals to stave off electoral defeat.