The rapid deterioration in B.C.’s finances since 2021 has drawn rising concern not only from taxpayers but from global credit rating agencies. Ratings agencies are yet to give their verdict on the 2025 Budget, but the news might not be good.
As recently as 2021, B.C. had one of the best fiscal positions of any province with a long track record of balanced budgets, low indebtedness and a AAA credit rating from S&P Global. Today, B.C. is running the largest deficit in the country relative to the size of its economy, has seen debt levels surge faster than any other comparable jurisdiction and seen repeated credit rating downgrades that raise the cost of borrowing.
S&P Global and Moody’s control around 80 per cent of the global ratings business. Ratings agencies assess credit worthiness, that is, a borrower’s ability to meet their financial obligations. Following last year’s budget, S&P downgraded B.C.’s credit rating for the third time in three years. It’s now AA-.
S&P’s commentary was clear, “We believe that the province’s commitment to fiscal discipline and stability has wavered in recent years as B.C. has materially increased its spending for both operations and capital investment to unparalleled levels, while economic growth is slowing.”
S&P went further: “We believe the province is at a turning point with respect to the management of its finances,” and judged, “B.C.’s budgetary performance will be the weakest of its peers, both domestically and internationally.” Both S&P and Moody’s have a negative ratings outlook and have raised the prospect of ratings downgrades if B.C. remains on its fiscal trajectory.
How does the 2025 B.C. Budget fare against those warnings? Not well. In September, the government was projecting a $6.7 billion deficit for 2025-26. The budget now projects a record $10.9 billion deficit this fiscal year, or 2.5 per cent of GDP, and similarly large deficits in future years.
By comparison, during the COVID-19 emergency of 2020-21, when the unemployment rate was 13 per cent versus six per cent today, the budget deficit was $5.6 billion. That deficit, being 1.8 per cent of GDP, was appropriate given the economy was in a deep recession.
There have been two major developments since the latest budget was crafted. First, the province eliminated the consumer carbon tax following the removal of the federal carbon tax. Second, the Trump administration made good on its threat to impose tariffs on Canadian exports. Consequently, we estimate the deficit for 2025-26 may already be around $14.1 billion.
B.C.’s fiscal deterioration reflects that operating expenses have increased by 33 per cent since 2021-22 while revenues have only grown by 16 per cent. In addition, government is projecting taxpayer-supported capital spending of around $15 billion annually, alongside $5 billion annually in ratepayer-supported capital spending by Crown corporations like BC Hydro.
To fund record operating deficits and record capital spending, B.C.’s taxpayer-supported debt-to-GDP ratio—a key metric of fiscal health—rises to 34.4 per cent by 2027-28. Taxpayer-supported debt will reach $29,000 per British Columbian, more than double where it stood in 2021-22 at $12,000.
In sum, B.C.’s fiscal deterioration is accelerating. Interest payments on provincial debt climb to $7.1 billion by 2027-28, and if classified as a government ministry, debt servicing would be the fourth largest.
This is unlikely to escape scrutiny by credit ratings agencies. Another downgrade would spell higher debt servicing costs and leave less room for other spending like health and education. Worse, B.C.’s fiscal trajectory sends a negative signal to businesses and households that future taxes may have to increase substantially to stabilize our fiscal situation.
While the budget was not the last opportunity to adjust course, a clearer path to fiscal stability is needed. The Business Council of British Columbia recently released a 10-point blueprint with recommendations on how the province can respond to the challenges posed by the Trump administration. It recommends getting B.C.’s fiscal house in order through spending growth restraint, alongside tax and regulatory reforms to grow the economy. Absent a change of course, B.C.’s fiscal hole only gets deeper from here.
David Williams is vice-president of policy at the Business Council of British Columbia. Jairo Yunis is BCBC’s director of policy.
