CURRENT forecasts show an increase in revenues and a reduction in the deficit for the 2021-22 fiscal year as British Columbia’s strong vaccination rates are supporting a swift economic recovery in many sectors, the province announced on Monday.
In the Province’s first quarterly report, the year-end deficit is projected to be $4.8 billion – roughly half of what was previously predicted in Budget 2021. This improvement is attributed to stronger-than-anticipated recovery in many sectors of the economy, leading to higher-than-expected revenues.
“We have all been impacted by the pandemic, and the collective actions of British Columbians have brought us through this unprecedented challenge together. This is the driving force behind B.C.’s faster-than-expected economic recovery and our improved outlook,” said Selina Robinson, Minister of Finance. “Because of this shared commitment, we’ve been able to see strong recovery in many sectors, while we continue providing targeted supports to the people and businesses that need it. The strong performance this quarter puts B.C. in a better economic and fiscal position than originally anticipated.”
The Province’s first quarterly report saw an overall increase of $6.2 billion in provincial revenues compared to Budget 2021. This is primarily due to gains in personal and corporate income tax revenues, natural resource revenues and federal funding largely related to B.C.’s pandemic response and recovery measures, as well as child care.
Upward changes to revenue are partially offset by higher expenses, mainly due to this year’s devastating wildfires and additional spending for the delivery of key services, as well as federally funded investments in early learning and child care and improvements in long-term care facilities.
B.C.’s real gross domestic product (GDP) is forecast to see continued strength, growing by 6% in 2021 and, as the recovery continues, by 4% in 2022. Higher retail sales, exports and housing activity, as well as total employment surpassing pre-pandemic levels, all contribute to an improved outlook for British Columbia.
While the Province’s fiscal outlook shows improvements from Budget 2021 based on the first quarter, there continues to be an elevated level of uncertainty in the revised forecast as a result of the evolving pandemic in the province and globally. The forecast allowance will remain unchanged to provide continued prudence.
“Since Budget 2021 was introduced five months ago, we’ve seen significant shifts in projections for B.C., Canada and around the world as the pandemic evolves, and we know we will see more changes as we move through recovery,” Robinson said. “Our job is to be prudent to ensure we are able to continue supporting the people and businesses of our province as we continue through pandemic response and recovery in the months ahead.”
As announced in Budget 2021, the Province allocated $3.25 billion in Pandemic and Recovery Contingencies to address health and safety measures related to COVID-19, targeted supports for businesses and people most affected by the pandemic, and additional funding to build B.C.’s economic recovery. This funding is in addition to last year’s spending of $10.1 billion to help support people, businesses and communities through the pandemic and into recovery.
Key supports provided to date as part of this spending include the COVID-19 paid sick leave employer reimbursement program, the Small and Medium Sized Business Grant program and the Circuit Breaker Business Relief Grant program to support businesses affected by closures, funding to support return to school measures in the K-12 sector, supports for the tourism sector, as well as one-time grants for B.C.-based events through the new Fairs, Festivals and Events Recovery Fund.
The government said that as committed to in Budget 2021, it will present a detailed path and timeline of how it intends to return to balance as part of Budget 2022.
BACKGROUNDER
B.C.’s First Quarterly Report 2021-22
The First Quarterly Report for the 2021-22 fiscal year shows the economic impacts of COVID-19 in B.C. The Province is forecast to end the fiscal year with a deficit of $4.8 billion, which is an improvement from the Budget 2021 forecast deficit of $9.7 billion, due to an improving labour market, increased natural resource revenues and higher federal government transfers.
Economic highlights:
* B.C.’s real gross domestic product (GDP) is forecast to grow by 6.0% in 2021 and 4.0% in 2022, an upward revision from Budget 2021 growth projections of 4.4% and 3.8% respectively.
* After experiencing substantial job losses at the beginning of the pandemic, the B.C. labour market has shown signs of continued improvement, and total employment has now surpassed pre-pandemic levels. B.C.’s unemployment rate for August is 6.2%, down from over 13% following the onset of the pandemic, and lower than the national average of 7.1%.
* Retail sales in 2021 have remained strong, are 13.0% above pre-pandemic levels and are forecast to continue growing in 2022.
* B.C.’s housing starts reached a record high in March 2021 and have remained well above historical levels through July 2021.
* B.C.’s real estate market has fluctuated since the start of the pandemic, with unit sales hitting all-time highs in March 2021, followed by four consecutive monthly declines between April and July 2021. Despite the decline, home sales remain elevated.
* Factors such as strong demand, low interest rates and low inventory are contributing to increased house prices across Canada.
* As of Aug. 6, 2021, an average of six private-sector forecasters expected B.C. real GDP to grow by 6.3% in 2021 and grow by 4.3% in 2022. This is better than the expected growth of 6.1% on average across Canada for 2021 and the 4.2% growth expected nationally for 2022.
Operating results:
* Revenue for 2021-22 is forecast to be $65.2 billion – $6.2 billion higher than the projection in Budget 2021 – primarily due to an improved economic outlook, higher-than-expected 2020 income tax returns and improved natural resource revenues.
* Contributions from the federal government are higher mainly as a result of $676 million in one-time pandemic relief funding and $87 million in new funding under the Canada-Wide Early Learning and Child Care Agreement.
* Expenses are forecast to be $1.4 billion higher at almost $69 billion, largely due to provincial wildfire response and expenditures. Other expense forecast changes reflect increased spending in health authorities and other service delivery agencies, as well as spending under the federal-provincial child care agreement and funding improvements in long-term care facilities.
* Of the $3.25 billion in the Pandemic and Recovery Contingencies allocated in Budget 2021, more than $2.5 billion has been allocated to support programs and services.
* This includes funding for additional measures since Budget 2021, including $325 million allocated for the COVID-19 paid sick leave employer reimbursement program, a $275-million increase in allocations to the Small and Medium Sized Business Grant program to accommodate increased demand and Circuit Breaker Business Relief Grants, and $26 million to support return-to-school measures in the K-12 sector.
* No changes are made to the $1.0-billion forecast allowance due to continuing forecast uncertainty over the remainder of the year.
Capital spending:
* Taxpayer-supported capital spending on hospitals, education facilities, transportation infrastructure, housing and other projects is forecast to total $8.2 billion in 2021-22, which is $0.3 billion lower than the Budget 2021 forecast.
* This is mainly due to timing changes of projects in the transportation and post-secondary sectors.
Risks to the fiscal plan:
The main risks to the government’s fiscal plan include:
* ongoing health-related uncertainty as a result of the pandemic, including the extent of the spread or containment of the virus in B.C. and around the world;
* uncertainty relating to the pandemic and the path of the economic recovery, which contributes to the potential volatility in the economic and fiscal outlooks;
* assumptions underlying revenue and Crown corporation forecasts such as economic factors, commodity prices, 2020 income tax assessments and weather conditions;
* potential changes to federal government transfer allocations, cost-sharing agreements with the federal government and impacts on the provincial income tax bases arising from federal tax policy and budget changes;
* spending pressures for costs associated with responding to emergencies such as wildfires and floods; and
* the need for additional pandemic and recovery supports, as well as utilization rates for government services such as health care, children and family services, and income assistance.
Debt levels:
* Governments, like the private sector, borrow to finance the building of long-lasting capital infrastructure, such as schools, hospitals and highways. In recent years, B.C. has had among the best debt metrics and credit ratings compared to other Canadian provinces.
* Government’s key debt affordability metric, the taxpayer-supported debt-to-GDP ratio, is forecast to improve from Budget 2021 due to lower debt balances resulting from lower deficits, as well as higher GDP projections.
* Taxpayer-supported debt levels are projected to reach $65.2 billion by the end of the fiscal year – $6.4 billion lower than forecast in Budget 2021.
* The taxpayer-supported debt-to-GDP ratio is forecast to reach 19.6% in 2021-22, down from the Budget 2021 forecast of 22.8%.
* Despite the need for increased borrowing and higher debt levels, B.C. will continue to benefit from low interest rates partially due to the Province’s good credit ratings.
* In 2021-22, the “interest bite” is projected at 3.0 – this means that 3.0 cents per dollar of B.C.’s revenue will go toward paying interest.
* As a result, the Province’s debt remains affordable.
* B.C. continues to be the highest rated among all the Canadian provinces by the three main international rating agencies.
