In an election that centres on affordability, B.C.’s big-picture economics matter

There is one thing that the leaders of the two major parties vying to form British Columbia’s next government agree on: Affordability is a major concern for voters.
The province’s economy may not be robust enough, however, to help alleviate that anxiety and provide the prosperity both leaders promise.
Economists say B.C. has some strengths: It is the only province with a triple-A rating from a major credit-rating agency and has one of the lowest unemployment rates in Canada, according to B.C.’s latest fiscal update.
But the rate of growth is expected at just under one per cent this year, which would be the worst performance among provinces, TD Economics says.
Regardless, the state of the economy by itself is not top of mind for average voters: A survey by the Vancouver Board of Trade released this week put it at fifth, behind health care and housing, affordability, public safety and the drug crisis. (It ranked first as an issue for business leaders.) But for whichever party claims victory after the Oct. 19 vote, the health of the economy will make the difference to what it can accomplish.
The next government will inherit a record deficit – the current estimate is $10-billion – with growing debt-servicing costs and rising demand for public services and housing because of a growing population. The fragile economy is heavily dependent on volatile global commodity prices.
British Columbia has had record population growth over the past two years, but its economy is actually shrinking, when measured on a per capita basis – meaning that household incomes are declining.
Depending on which party leader is speaking, British Columbians face a bleak future, or good times are just ahead. Confronted with the same set of facts, the NDP’s David Eby and Conservative John Rustad have different visions for how to stoke economic growth.
“When politicians talk generically about ‘the economy,’ look at that with a bit of skepticism. The economy is large and complex, and there’s always areas of strength and always areas of weakness,” said Trevor Tombe, director of fiscal and economic policy at the University of Calgary’s School of Public Policy.
Prof. Tombe said B.C.’s growing budget deficit may have short-term negative impacts on the economy, but will deliver long-term benefits as needed infrastructure is brought online. And while the leaders are promising different versions of tax relief to address concerns about affordability, there’s no one plan that can claim to be best for everyone.
“Tax reductions, depending on the type, can absolutely increase the rate of economic growth, but there’s winners and losers within that,” Prof. Tombe said in an interview.
As voters focus on the cost of living, he said it is important to consider that B.C.’s challenges are far from unique.
“It’s been a really difficult few years, no question,” he said. Prices have climbed by 18 per cent on average in the province over the past five years. “That’s basically exactly the same as what we’re seeing nationally.”
Similarly, rental accommodation costs have jumped by 26 per cent over that period in B.C., while the national rate of increase is 25 per cent.
“B.C. is not experiencing worse affordability and inflation challenges than the rest of the country.”
But the number of British Columbians has increased by 380,000 since 2022, and the economy has fallen behind that growth, so each slice of the pie is smaller.
Meanwhile, provincial debt is climbing rapidly and the labour market is increasingly dependent on public-sector jobs. B.C.’s budget this year prompted downgrades from major bond-rating agencies.
Standard & Poor’s downgraded the province’s credit rating this year from AA to AA- in response to the record deficit tabled in February. Moody’s still gives B.C. a triple-A rating over the long term but has downgraded its outlook to negative.
The S&P downgrade, and the caution from Moody’s, are as much about the direction of the NDP government’s fiscal decisions as it is about the province’s current economic circumstances, spokespeople for those agencies say.
Ken Peacock, chief economist for the Business Council of B.C., says the province’s shrinking economy on a per capita basis is something that should be part of the debate in this election.
“It means weaker wage growth. It means fewer opportunities. It means more difficulty getting your child out of your basement,” he said in an interview.
“Per capita income is front and centre in this story of eroding living standards,” he said.
Favourable comparisons of B.C.’s economy to that of Canada, he said, are cold comfort.
“Canada is essentially a basket case in terms of per capita GDP. We’re going to have the weakest growth in productivity amongst all OECD countries,” he said.
“But against that backdrop, [B.C.] is the weakest, or near the bottom of the provinces, against the very low, low bar, weak Canadian national performance.”
Leaving aside the height of the pandemic when governments everywhere faced unexpected and unprecedented demands, the BC NDP government earned approval for fiscal prudence – until recently. Mr. Eby was touting the virtues of a balanced budget when he became Premier two years ago.
“The fact that we’re in a sound fiscal position, we have a budget surplus, we have stable finances, puts us in good position to provide the support in sectors that need support – in health care and housing and responding to mental health and addiction issues in our streets,” he said in 2022.
But the fiscal plan introduced in February was a departure from previous NDP budgets since the party formed government in 2017. As Mr. Eby prepared for this fall’s election battle, the taps were opened wide for spending on health, education and social services. In addition, the continuing infrastructure spending on new schools, hospitals and affordable-housing projects will increase the debt burden dramatically over the coming years.
Bhavini Patel, director at S&P Global Ratings, said B.C.’s fundamentals are fine: “They have a very sound economy,” she said in an interview.
However, it is the direction of the government under the NDP that prompted the recent downgrade, she said.
“Their debt is still low compared to Ontario and Quebec, but growing at a steep rate,” Ms. Patel explained. “Most provinces are returning to balanced budgets, and B.C. is moving in a different direction than most of their peers.”
A lower credit rating means higher borrowing costs, and Moody’s has similarly expressed concern with the province’s financial management. It still rates B.C. as a top-rung, triple-A borrower but posted a negative outlook this spring. Some of the factors for that caution relate to external factors; historical interest rates, global supply-chain disruptions and labour scarcity.
But Adam Hardi, senior analyst for Moody’s, said the decisions by the NDP government are the main concern.
“The province is increasing spending more than we’ve seen in the past and that is purely a policy choice.”
In terms of fiscal policy, neither party leader is pledging a swift return to budget surpluses. Mr. Rustad has promised to balance the books by the end of a second Conservative term, in other words, by eight years. Mr. Eby has declined to commit to a deadline, but told The Globe and Mail’s editorial board that it’s “reasonable to believe that eight years from now, we’ll be in a different economic cycle.”
Mr. Eby’s election platform will increase borrowing for operating costs next year by an additional $3-billion, but he says that he’s committed to reducing the deficit each year after that.
Mr. Eby maintains that despite global inflation and high interest rates, the province’s economy is sound, though he acknowledges that many residents aren’t feeling it.
“I’m not satisfied until every British Columbian sees the benefit of that growing economy in their own lives, in their own jobs and their own wages, and what they take home at the end of the day,” he said during a campaign rally.
Mr. Rustad says that the NDP has run the economy into the ground with red tape and high taxes, making it harder for people to make ends meet.
“We’ve got a radical NDP government that is spending more to get less, and driving jobs and opportunities out of our province,” he said in a campaign statement.
However, he has announced tax cuts for individuals and businesses, as well as a host of major capital construction projects, without saying yet how he can do that and still work toward a balanced budget.