Flash back to spring of 2020, when the enormity of the pandemic was hitting home.
The medical impacts were front and centre and the economic effects were just taking hold. The unemployment rate had doubled and social activity was curbed. B.C. was budgeting $9 billion to cope with the first wave and provide relief, an enormous new strain on resources.
Federal and provincial governments were spending like never before to help people. The balanced budget of the previous year was forecast to plunge into a $12.5-billion deficit, and the situation was so uncertain they stopped calling them forecasts, and switched to “scenarios.”
(My own forecast was that B.C. would incur deficits for a “decade or more.”)
What do I know? The 2020-21 year ran $5.5 billion in the red, but the release of the public accounts on Tuesday, the official reckoning for the fiscal year that ended last March 31, shows the deficit has disappeared practically overnight.
The Finance Ministry expected a $9.7-billion deficit when the budget was first tabled. It’s now turned into a $1.3-billion surplus. The fairy tale bounce-back happened largely due to an explosion in economic activity when pent-up appetites were unleashed as COVID let up, for at least a while.
It’s the same story across most of the country.
Finance Minister Selina Robinson said it was “unexpected,” but that doesn’t begin to describe it. It’s downright astonishing, particularly when torrential floods, wildfires and mudslides racked up huge costs. Those piled on top of $3.8 billion that falls under the broad heading of pandemic spending. (About $2 billion for health-related pandemic management and $1 billion for economic supports make up most of that.)
Robinson introduced the budget in question during the first full winter of COVID, after a holiday season that was constrained by restrictions and at a time that vaccinations were just getting underway. “It was a very different reality than the one we find ourselves in,” she said Tuesday.
“Speaking with my finance minister colleagues, none of us, none of us were able to predict within our budgets how Canadians would respond,” she said.
The difference between the projected estimates and the actual numbers is heightened by the government’s penchant for being hyper-conservative when it comes to expecting the worst.
The government’s initial estimate in the first grip of the pandemic was a $13.6 billion deficit. So the pattern of using worst-case scenarios for budget estimates that don’t materialize contributes to the rosy picture on Tuesday.
The picture started improving days after the budget was tabled. Each quarterly report after February showed better performance and a smaller estimate of the deficit.
B.C.’s economy opened faster than forecast and the Finance Ministry highlighted one contributor to that strength — increased migration. Just over 100,000 people moved to B.C. last year, about one third from Canada, two-thirds from other countries. It’s the largest net migration increase in 16 years. The downside is that it put pressure on the housing market, which is where a fair chunk of the revenue bonanza to the government originated.
Coincidentally, the $1.3 billion surplus is exactly the same amount as the increase in property transfer tax revenues last year, which is just one of several revenue streams from real estate. It shows the NDP rely just as much on real estate mania for revenue as the B.C. Liberals did.
One thing to keep in mind is that warning on all mutual fund statements: “Past performance does not predict future results.”
The public accounts are a five-month-old snapshot, and a lot has changed since the books closed March 31.
“This is a very different year,” Robinson said. “We have global inflation, people struggling to make ends meet.”
Interest rates are much higher now. Although the government is cushioned from many of the direct effects of higher interest rate on its vast borrowings, it could crimp the economy as a whole.
Just So You Know: There’s one snippet from the Royal B.C. Museum’s books that bears watching as the NDP retrenches on the big renovation project that crashed this summer.
RBCM has a lot of money flowing in different directions, but the annual operating line shows a $13.4 million surplus in 2021 turned into a $1.2 million deficit in 2022.
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