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B.C. deficit projection grows to $12.8 billion for 2020-21

Last Updated Sep 10, 2020 at 9:14 pm PST

FILE - B.C. Finance Minister Carole James. (Courtesy B.C. Government)
Summary

The B.C. economy showed signs of recovery in the first quarter of the year

Finance Minister Carole James forecasting a fiscal year and deficit of $12.8 billion

The province has seen stronger than expected consumer spending, housing activity and employment gains

VICTORIA (NEWS 1130) — The B.C. economy showed signs of recovery in the first quarter of the year due to stronger than expected consumer spending, housing activity and employment gains, but the deficit still grew due to the COVID-19 pandemic.

Finance Minister Carole James released province’s first quarterly report for 2020-21 on Thursday.

“We all know that the world is a very different place today than it was when I tabled February’s budget,” she said.

B.C. projected a $227 million surplus before the coronavirus pandemic.

The period from April to June saw the largest contraction of the Canadian economy on record due to COVID-19, she added.

The province responded with a plan that included tax cuts and credit increases, rent supplements, relief on bill payments, income assistance, boosts to tax payment deferrals, and worker benefits.

“And in the first quarter, we’re forecasting a fiscal year-end deficit of $12.8 billion,” she said.

That’s up from the $12.5 million forecast two months ago.

“What I said from the beginning still holds today, B.C. is well-positioned to move into economic recovery, while continuing to focus on providing support to people and businesses and communities,” James said.

“People will know I don’t sugarcoat situations. I’m a realist. But I’m also optimistic when it’s warranted. And there are some early positive signs of recovery for people and for businesses. We see this in the latest employment data and improved retail sales outlook and some resiliency in the housing market. But again, being a realist. We have a long road ahead of us.”

At the beginning of the pandemic, combined job losses for March and April in B.C. totaled 396,500 — mainly in the wholesale and retail sectors, as well as the construction and hospitality industries.

From May to August, the B.C. economy regained 246,900 jobs, or roughly 62 per cent, James added.

“That’s, again, a very good positive sign. But I think it’s important to recognize and to remember that there is still 149,600 fewer jobs in August, compared to February. That’s a drop of 5.9 per cent. So overall, the unemployment rate in B.C. was 10.7 per cent in August, up from five per cent in February.

Job gains have come in the utilities and scientific sectors.

Retail sales have returned to pre-pandemic levels, while housing market activity has also rebounded. Housing starts have returned to levels seen in February, while sales in July nearly matched those in 2017.

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James said the finance ministry is forecasting the economy to contract by 6.7 per cent in 2020 before expanding by three per cent in 2021.

The report also projects $4.6 billion less in revenue in 2020-21 compared to the original budget, along with $7.7 billion in increased spending for pandemic response and other expenses.

The report also outlines a significant increase in borrowing, adding the province’s debt remains affordable.

The province’s first quarterly report confirms revenue declines in taxation, natural resources, and other sources that were anticipated in July. However, the overall impacts on revenues and expenses are lower, with a $5.7-billion decline from this year’s budget compared to a $6.3-billion decline shown in the July scenario.

Improvements from July’s update include better than expected employment gains, retail sales, and housing activity, resulting in revenue gains in provincial sales tax, personal income tax, and property transfer tax.

The updated deficit forecast also includes a $1 billion forecast allowance as part of the government’s response to COVID-19.

The first quarterly report also includes a summary of COVID-19 investments to date, with details of the $7.6 billion in COVID-19 response measures. Those included supports such as workers benefits, rent supplements, income, and disability assistance supports, and economic recovery funding.

Another $1.8 billion in temporary relief measures for people and businesses included supports such as the Climate Action Tax Credit, pandemic pay for front-line workers, and the reduction of school tax for commercial properties.

Another $1.5 billion has been earmarked for economic recovery measures to be announced in September.

“I think it goes without saying that these are unprecedented times and these are times that are very hard to predict what’s coming ahead, and so we may see slower recovery because of a weaker global recovery. That’s entirely possible,” James said.

“We may see a more negative impact to households and to businesses, we may see future waves of the virus and that may have an impact Crown Corporations — BC Lotteries Corporation, for example, depending on casino closures — could have a longer-term impact, she added.

“And so we’ll be looking at all of those factors as we move into to not only our budget process, but obviously the next report that will come out in Q2. And so that’s why, again, we’ve ensured that we built prudence into the budget.”

Read the full fiscal report:

FIN Tech Briefing slides - Q1 2020