BC Voters Guide: Deficits
How do BC's parties plan to find a healthier balance between spending and revenue?
Last updated October 15, 2024
The most recent provincial budget update pegs BC’s deficit at $8.9 billion, even though the province isn’t in a recession. That’s a staggering figure, especially since relatively little of it is incurred to fund priorities like affordable housing, child care, or addressing the escalating rising risks and costs of unnatural heat waves, floods and fires. Today’s deficit is bigger even than budget overruns during the COVID-19 pandemic.
To put the scale of this cost in context, Doug Ford’s Progressive Conservative government in Ontario announced a $10-billion deficit in 2024.
A deficit of this size is costly. The bill for servicing BC’s debt was already $3.3 billion last year, and charges will grow to $5.7 billion by 2026 under the NDP plan. That’s more than the province will spend on child care and housing combined.
All political parties have a stake in solving these intergenerational tensions. Here are the questions we're asking as we evaluate parties for our Good Ancestor Report Card. Keep reading for our answers.
- Do parties acknowledge that it’s unfair to mortgage the future?
- Do parties offer a realistic plan for balancing spending and revenue?
- Do parties resist implying that economic growth is a cure-all for deficits?
- Do parties recognize the role that rising medical care costs for an aging population are playing in driving up deficits?
- Do parties propose concrete solutions to pay for boomers’ medical care that account for government failures to plan adequately decades ago?
Do parties acknowledge that it’s unfair to mortgage the future?
Good ancestors acknowledge it’s unfair to leave our unpaid bills for future generations.
According to the BC Conservative party: “It’s immoral (and financially hazardous) to continue living beyond our means and leaving our children with the bill. While not immediate, we will plan on balancing the budget.”
That’s a platform promise we really like. It helps bring to life the intergenerational golden rule: do unto other generations as you would have them do unto your generation. No generation wants to pick up the unpaid tab from those who came before, especially when those who came before had the means to pay their own bills.
We give the BC Conservatives credit for raising awareness of the scale of the problem. Unfortunately, the party’s plan to actually tackle it is at best emerging. The party did not offer estimates for its platform promises until October 15 -- well after the other parties. These estimates do not provide summary projections of the deficits it will run over the coming years. It does concede that the party will not balance the provincial budget during a first term in office. Still, we award an "emerging" grade to the BC Conservatives on this issue, because it has publicly stated its concern about running large deficits outside of a recession. So it has shown awareness, even if it does not yet offer a viable action plan (more below).
The BC NDP also deserves credit for recognizing in its pre-election budget that BC’s deficit is, in large part, structural. In other words, it’s baked into decisions made decades ago about revenue and spending — decisions that did not adequately plan for the population aging that is now rapidly increasing costs. This is a hard truth that any future BC government needs to share with residents if we want to achieve a more sustainable footing for our finances.
Despite this recognition, the willingness of the BC NDP to run large deficits when the province is not in a recession is worrisome — especially given the party’s limited acknowledgement of the lopsided intergenerational impacts of this decision. As discussed in more detail below, what’s driving up the deficit is primarily medical care for older generations. Yet the bill for this prescription is being left to younger and future generations to cover — even while investments in their wellbeing are failing to keep pace.
The BC Green platform doesn't mention the word "deficit." Its final pages do end with a serious tally of the additional revenue its proposals would collect, and the additional expenditures it would make. In all three years for which it provides cost projections, the Green platform would grow the deficit beyond what is already forecasted in the 2024 provincial budget. So we award a regressing grade.
Do parties offer a realistic plan for balancing spending and revenue?
Good ancestors provide clear details about how they expect to tackle deficits.
The Conservative party promises “Lower taxes, smaller government” as a strategy for balancing the books. But this commitment will likely make it harder for a Conservative government to balance the books. We agree that “wasteful spending should be cut and the savings returned to taxpayers” just as they urge. All parties should promise as much. But to do so, parties need to identify what they think counts as 'wasteful', an issue on which the Conservatives are relatively quiet. If available revenue from taxes is reduced via cuts, the task of finding spending to cut will get even harder. This will be all the more true given that the so-called Rustad Rebate that will deliver up to $1,800 in tax relief by 2029 has an estimated price tag of over $3 billion a year. This will require additional cuts, or larger deficits, or some concrete evidence to explain why there is any reasonable expectation that the tax cut will stimulate enough economic growth to compensate for the loss in revenue. So we award a grade of "regressing."
The BC NDP projects significant deficits for the next 3 years, with few details and little urgency around finding a better balance between revenue and spending. Voters should expect much more from the party on this issue.
In 2024, the provincial deficit is forecasted to be $8.9 billion. Despite this, there is no discussion of revenue resiliency in the NDP platform. In fact, the entire NDP platform (p. 63) includes only one measure that will increase taxes -- the speculation and vacancy tax. This change will bring in an additional $60 million in revenue -- barely enough to reduce this year's deficit from $8.9 billion to $8.8. The challenge of balancing the books is made all the more difficult in the NDP platform because it has accepted the Conservative party challenge to compete over the size of the tax cuts it is putting on offer. To rival the Rustad Rebate, the NDP offers a "middle class tax break" that it says will deliver $500-$1,000 in tax relief to 90% of British Columbians. This is estimated to add $1.8 billion to the deficit. (And we will leave for another day the question: how can 90% of BC residents be "middle" class?). We assess a "regressing" grade.
While the costed platform of the BC Greens shows it also plans to grow the size of the BC deficit, it is the only party to propose a real discussion about taxation -- one that includes concrete ideas to raise more revenue than is currently being collected: specifically $5 billion in year 1, and $7 billion in years 2 and 3. It also proposes (p. 64) a "systematic review of British Columbia's entire tax and transfer system." Since we already awarded the party a "regressing grade" above for its failure to avoid mortgaging the future, we assess an "emerging" grade because it is the only party to offer a realistic plan to re-establish balance between spending and revenue.
Put bluntly, the BC Greens are the only party not proposing to spend more on benefits that voters want without having a hard truth conversation about how we will collectively pay for it -- other than leaving unpaid bills to our kids and grandchildren.
Do parties resist implying that economic growth is a cure-all for deficits?
Good ancestors avoid wishful thinking when making assumptions about the future economy.
Given the Conservative party’s allegiance to lowering taxes, they likely hope that tax cuts will stimulate the economy — and that faster economic growth will in turn grow provincial revenue. This ‘lower taxes, higher revenue’ mantra is the sometimes real — but often mythical — win-win to which many parties aspire (especially on the centre-right).
In the current context, this aspiration runs headfirst into the proverbial ‘elephant in the room’ that political leaders generally like to avoid discussing. BC’s population is aging, and economics literature is clear that when populations age, economies slow down. Both growth and productivity decline when there are fewer workers in the labour market — a trend that is well-documented across OECD countries. This is the reality BC is now facing as the big demographic bulge represented by the baby boom generation has reached retirement.
If the BC Conservatives plan to rely on tax cuts to stimulate growth, they’ll need to explain how their plan will stimulate the economy enough to compensate for the economic drag caused by our aging population.
Such information is missing from the appendix with costing estimates that the party provided as of October 15. Page 2 presumes its platform will spur economic growth in BC to reach 5.4% per year between 2024 and 2030 -- up from the the current BC government projection of 3.1%. With this additional growth, the BC Conservatives bank on having "over $10 billion more per year for the services we need -- at no cost to taxpayers." However, Statistics Canada data about BC GDP over the last 25 years give good reason to doubt this assumption in the Conservative platform. Table 36-10-0402-01 provides GDP data back to 1997. When one calculates the annual growth rate following that year (whether measuring GDP in "current dollars" or "chained (2017 dollars"), there are no consecutive six year periods when average growth rates rival the assumption in the BC Conservative platform (although you could cherry pick some years from 1999 to 2007 to find a time period where nominal GDP numbers grew at levels that meet the Conservative projection). Given how rare it has been for BC's economy to grow to the degree that BC Conservatives now aspire, there is good reason to doubt the veracity of this fundamental assumption in the BC Conservative platform. This is especially true when we recognize that a right-of-centre party ruled for much of the last quarter-century during a period when population aging did not impose as much of a dampening influence on growth.
As noted above, the NDP plan is to run big deficits — although they are expected to shrink as a share of the economy. There is no discussion the platform about the degree to which economic growth can, or can't, be relied on to balance the books.
The BC Greens offer the most sophistication on this issue in their platform. The "systematic review" of BC's entire tax and transfer system would explicitly consider "where our tax take is on the Laffer curve" (p. 64). For most readers, this promise will be meaningless. But it is a big deal for any party counting on tax cuts to spur enough economic growth to accelerate government revenue collection. The Laffer curve is an economic concept that explores the relationship between tax rates and the amount of revenue that governments collect. According to the Laffer curve, increasing tax rates beyond a certain point is counter-productive for raising further tax revenue, because it discourages people's incentives to work, among other issues. So the Green party is proposing to answer a really important question: could the BC government collect more revenue by adjusting our taxes up or down? It's worth noting that Canada already collects taxes at a level that is below the OECD average. Given this sophistication, we award the Green party platform a "developing" grade.
Do parties recognize the role that rising medical care costs for an aging population are playing in driving up deficits?
Good ancestors are honest about how much it will cost to care for our aging loved ones.
Over decades past, successive BC governments failed to prepare adequately for the increased medical costs that everyone knew would accompany the aging of large baby boom generation. This lack of foresight has put BC’s budget in a precarious position.
While today’s seniors dutifully paid taxes according to the rules of the day, those rules were set up to cover the cost of the smaller generation of retirees that preceded them — not to cover the full cost of the medical care they would actually use. As a result, the province has insufficient funds to pay for rising retiree medical expenses. The unpaid portion of this bill that will be shouldered by the kids and grandkids of today’s retirees is estimated by the CD Howe Institute at $410 billion. BC would need to increase provincial taxes by 43% over the decades ahead in order to close the gap between revenue and retiree medical expenditures.
This critical structural problem in BC’s budget should be front and centre for any party campaigning to lead the province. All parties should put forward a realistic plan to pay for the medical care expected by the aging population without leaving large deficits to their kids and grandchildren.
The BC NDP have started down this path. We should commend the party for bravely acknowledging that an older population consuming more medical care is a big factor in the (ill) health of BC’s balance sheet. The government’s 2024 Strategic Plan (p. 3) states:
“Continuing to provide high-quality medical care is one of the fastest growing costs facing us collectively, primarily due to our aging population. In the 1970s, there were seven working-age adults for every retiree. Now, there are only three. That made it easier in decades past for the Province to cover the medical-care costs of our aging loved ones.”
While the NDP correctly diagnose one key source of today’s whopping deficit, the party falls short of offering a detailed plan to deal with this fiscal and intergenerational tension. In fact, Premier Eby’s 2024 Budget gave medical care the largest single-year increase in BC history: $4.5 billion in 2024, growing to $6 billion in new annual medical spending by 2026. About half of this new money will be used by residents aged 65+, who represent 20% the population.
The BC Conservatives policy backgrounder on medical care acknowledges that "An aging population means an increase in retirements and as a result causes an increase in demand" for medical care. It adds that "Meeting the healthcare needs of an aging population will drive the costs of Canada's publicly funded healthcare system higher: the cost of healthcare for the average senior is about $12,000 per year, compared with $2,700 per person for the rest of the population. The Conference Board of Canada estimates that BC's healthcare costs associated with the aging population will increase by $12.7 billion from 2017-2026."
It is critically important that the BC Conservatives are grappling with these cost pressures. As with much of the Conservative platform, the party is stronger at naming this problem than promising concrete solutions. Accordingly, we award the party an "emerging" grade.
While the BC Green platform includes several references to BC's "aging population," it never specifically engages with the enormous pressures on provincial coffers that go hand-in-hand with a growing cohort of retirees, and a declining number of workers. That gap in in Green planning needs to be addressed.
Do parties propose concrete solutions to pay for boomers’ medical care that account for past government failures ?
Good ancestors clean up the fiscal mess left by past governments, which didn't collect enough revenue from baby boomers during their working years.
The yawning gap between medical care spending and available tax revenue could have been avoided. Gen Squeeze has long pointed out that BC could have set itself on more sustainable financial footing years ago by following the example of federal adaptations to the Canada Pension Plan (CPP). Our analysis was recently echoed by the CD Howe Institute.
In the mid-1990s, Ottawa recognized that a shrinking ratio of workers-to-retirees required changes to social programs that are sensitive to population aging, like the CPP, Old Age Security (OAS) and medical care. To keep the CPP solvent for future generations, Ottawa shifted it to a prepay system. Under this model, the payments individuals contribute over their working lives are closer to the average cost of the CPP benefits they expect to use in the future. Moving to this approach increased annual CPP contribution rates by 65%, but ensured the long-term viability of the program.
Unfortunately, BC and other provinces didn’t make similar changes to revenue collection for medical care. It remains a “pay as the province goes” system, meaning governments collect revenue in each year to correspond (more or less) with the cost of the medical care used by residents in that same year. Under this approach, insufficient revenue was collected to cover the (rising) costs of the entirely predictable large wave of retirees from the baby boom cohort.
Previous BC Liberal governments managed these fiscal pressures by reserving new spending primarily for medical care. Since Canadians use more medical care after age 65, spending for seniors grew about four times faster than for those under age 45. From the limited information made available by the BC Conservatives, the party seems likely to continue down this path. Without dramatic tax changes to collect more revenue, we anticipate that Conservatives will devote most new spending to medical care, run deficits to fund this new spending, and invest relatively little in child care, housing and fighting climate change.
The NDP’s pre-election budget also ramped up medical spending, with the largest single-year increase in BC history. Despite this historic investment which disproportionately benefits older residents, the age gap in new provincial investment under Premier Eby is less than half of the gap budgeted by former Premier Clark. This is because the NDP also introduced larger increases in funding for child care, housing, postsecondary and K-12 education. But of course, it’s this approach that has resulted in a whoppingly large deficit.
We need all BC political parties to be brave enough to engage British Columbians in a hard conversation about how we, and especially affluent boomers, will pay for the medical services our aging population plans to use.
So far the NDP, Conservatives and Greens have not published any platform information that demonstrates they have a realistic plan to pay for the medical care expected by the aging population. And they are especially silent on how to do so without leaving large deficits to younger and future generations, and without continuing to under-invest in tackling the massive cost of living and environmental pressures they face. These shortcomings in party platforms needs to change if BC is really to “keep working for all generations” (BC government Strategic Plan, p. 3).
