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2022 budget for B.C. needs to be grounded in sound fiscal policy

The BC NDP government’s 2022 budget will be tabled in the third week of February, which happens to coincide with the two-year anniversary of the beginning of the pandemic that continues to roil the world.

The BC NDP government’s 2022 budget will be tabled in the third week of February, which happens to coincide with the two-year anniversary of the beginning of the pandemic that continues to roil the world.

Like people everywhere, most British Columbians are likely exhausted by the virus. Unfortunately, as the Omicron variant of COVID-19 infects thousands of B.C. residents every day, it seems the virus isn’t done with us yet – and the forthcoming budget will have to acknowledge that unwelcome fact.

Still, the budget can’t be defined by COVID-19 alone. The John Horgan government also must look to the province’s economic future. From that perspective, we hope the budget will advance two key priorities.

The first is a commitment to sound fiscal policy. In terms of government deficits and debt, B.C. has done comparatively well since COVID-19 arrived on the scene. This year’s operating deficit is likely to come in well below the $5.5 billion posted in 2020-21. That speaks to the strength of the economic rebound that started in the second half of 2020, the surging commodity prices that have benefited B.C.’s resource-heavy export economy, the impact of higher inflation in lifting government tax receipts, and the vast sums of money spent by the federal government to support workers, businesses, households and non-profit organizations affected by the pandemic.

In Canada, the lion’s share of the added government supports and spending while navigating the pandemic has fallen squarely on Ottawa’s shoulders – appropriately so, in our view. This has proved helpful to B.C.’s public finances. After two years of living with COVID-19, B.C.’s net government debt – which reflects both past operating deficits as well as government borrowing to fund capital projects – remains below 20 per cent of GDP, only a couple of percentage points higher than before the pandemic. The federal debt, on the other hand, has soared to more than 50 per cent of GDP from 30 per cent in just two years.

In short, the B.C. government is still in decent fiscal shape. But challenges lie ahead.

The biggest is negotiating new compensation arrangements with about 380,000 employees in the broad provincial public sector – including public servants, Crown corporation employees, and workers in the health-care and education sectors. Most collective agreements expire this year. Public sector payrolls account for three-fifths of all B.C. government outlays, and a one per cent increase in overall employee compensation adds about $400 million to annual government spending levels. Thanks to this math, the government has a keen interest in carefully managing public sector pay.

But with inflation in B.C. recently running near four per cent, the government may face a difficult balancing act. In this environment, it’s unlikely public sector employees and unions will be satisfied with contracts delivering two per cent annual pay boosts.

A second priority for budget 2022 is to improve the environment for business investment. 

C.D. Howe Institute research has clearly demonstrated that businesses in Canada invest far less per employee than their counterparts in other advanced economies. The most recent data shows that investment per worker in Canada is not even 60 per cent of the average for all advanced economies. B.C. generally mirrors the weak national investment picture.

Lower levels of investment in things that make employees more productive – machinery, plant and equipment, advanced process technologies, intellectual property products, engineering infrastructure and software and data – make it harder to increase real wages and salaries for workers over time. One would hope that a government with historic roots in the union movement would be worried about the implications of sluggish business investment for jobs and wages – and be prepared to institute policy changes to encourage private sector capital formation. If so, budget 2022 should send a signal that the government intends to make changes to the tax system and to current regulatory frameworks affecting major sectors of the B.C. economy to spur business investment, innovation and entrepreneurship. •

Jock Finlayson is the Business Council of British Columbia’s senior policy adviser; Ken Peacock is the council’s senior vice-president and chief economist.