As the clock ticks down on the start of the 2025 budget season, spare a thought for Canada’s beleaguered finance ministers.
Toiling at their desks in Ottawa and the provincial capitals, they are struggling to develop realistic fiscal and economic projections amid the whirlwind of chaos unleashed by U.S. President Donald Trump. Every day seemingly brings new pronouncements from the White House that pose fresh risks to the economic outlook and foster more uncertainty for budget planners and business decision-makers.
Among other things, President Trump has threatened a barrage of tariffs on American imports from allies and adversaries alike, with initial tariffs already applied to China and soon-to-hit steel and aluminum exports to the U.S.—including those from Canada.
In fact, Canada is squarely in “tariff man’s” line of fire. We are the second-biggest supplier of U.S. imports and run a modest surplus on bilateral trade in goods and services combined. Worryingly, we rely on the U.S. market for an eye-watering 77 per cent of our total export earnings. (In B.C.’s case, the U.S. buys about 55 per cent of our exports.) Looming in the near future is the possibility of 25-per-cent U.S. tariffs on all Canadian goods shipped to the U.S., other than oil and critical minerals, which would attract a lower 10-per-cent duty under the tentative plan unveiled by President Trump in late January. Those punishing tariffs are now on hold, temporarily.
The Trump administration will decide whether to apply sweeping new tariffs on Canada in the coming weeks. A 25-per-cent across-the-board levy would quickly push Canada—including B.C.—into recession. A 10-per-cent tariff—a probable scenario, in my view—would cut real economic growth roughly in half, squelching any economic momentum after two years of notably sluggish growth in both Canada and B.C.
Against this backdrop, B.C. Minister of Finance Brenda Bailey is putting the finishing touches on the BC NDP government’s 2025 budget and updated three-year fiscal plan. When presented in early March, it won’t make for happy reading. The province was already wallowing in red ink before Trump’s return to power, thanks to the epic spending spree engineered by David Eby after he ascended to the premier’s office in the fall of 2022.
In two short years, Eby managed to convert a solid budget surplus bequeathed by his predecessor John Horgan into a record operating deficit of almost $10 billion. He also oversaw an unprecedented surge in public sector debt, fuelled by the return of operating deficits plus record levels of borrowing to pay for capital projects. As a result, B.C.’s taxpayer-supported debt is on track to reach 29 per cent of GDP in 2026-27, up from 22 per cent in 2024-25 and just 15 per cent in 2022-23. Yes, you read that correctly: B.C.’s net debt will essentially have doubled as a share of GDP in five years.
Faced with a bleak fiscal starting point, Bailey recently scrapped the BC NDP’s election promise of a $1,000 “grocery rebate” for B.C. residents and announced a short-term hiring freeze for positions involved in providing “non-core” services. In her public comments, the minister implied that B.C.’s budgetary challenges somehow can be laid at the door of the Trump administration and its mad-cap tariff and trade policies. Yet the province fell into a fiscal abyss long before Trump’s political resurrection. Absent the wrecking ball that Eby took to B.C.’s public finances over the last two years, the province would be in a far better position to weather the storms likely to be caused by a Trump-induced economic downturn.
The advantages of fiscal prudence were well understood by former premier Horgan and his two finance ministers—Carole James and Selina Robinson. In taking on the finance portfolio at the premier’s request, Bailey has been dealt a very weak hand. Together with hapless B.C. taxpayers, she is about to learn the wisdom of Horgan’s careful approach to managing the books.
Jock Finlayson is chief economist at the Independent Contractors and Businesses Association.
