September 12, 2022 | 15:11
British Columbia FY22/23 Fiscal Update (Q1)
The Province of British Columbia is estimating a $706 million surplus for FY22/23, sharply improved from the $5.5 billion deficit penciled into the 2022 budget. The improvement also follows a much better-than-expected finish to FY21/22, when the province posted a $1.3 billion surplus (which was a $483 million shortfall before the release of the public accounts). In both years, stronger revenues are the source of the upside surprise, consistent with what we've seen across most provinces so far this year. For this fiscal year, total revenues are tracking a massive $9.3 billion stronger than initially expected. Personal and corporate income taxes account for more than half of the jump, while resource revenues and federal transfers also add.
Real GDP growth is expected at 3.2% this year, down from 4.0% in the budget, while 2023 was carved to 1.5% (from 2.5%). BMO Economics fully agrees with the forecasted slowdown, with our latest call at 3.2% and 1.0% for those two years.
Meantime, spending continues to get pushed higher, a theme that has been in place in recent budgets. This fiscal year, an additional $1.9 billion is budgeted for labour negotiations, while recently-announced affordability measures will cost $1 billion. As is the norm with B.C., significant contingencies remain in place for this fiscal year and through the forecast horizon.
Looking ahead, B.C. will fall back into deficit to the tune of $3.8 billion in FY23/24 and $2.0 billion in FY24/25, alongside sharp spending increases and some downward normalization in revenues (though the latter remain well above budget expectations). On the spending side next fiscal year, $1.2 billion extra is budgeted for the Shared Recovery Mandate (relating to public-sector pay increases); and a further $2 billion is allocated for spending priorities yet to be determined.
Total gross borrowing requirements are now estimated at $12.4 billion for FY22/23, down from $19.0 billion in the budget. Just $5.4 billion remains to be completed.
The Bottom Line: A solid net improvement in the near-term fiscal outlook, with the cumulative bottom line now better by $9.5 billion between FY21/22 and FY24/25. But, continued spending pressure (on the ground and planned) leaves much more improvement on the table.