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Rob Shaw: The dizzying B.C. debt load isn't to be taken lightly

The debt is growing quickly, but the government says not to worry
B.C. Premier David Eby won't be able to direct the expenditure of hundreds of millions of dollars by the Friday deadline.| Photo: Government of B.C./Flickr

Premier David Eby is expected to let hundreds of millions of dollars in unspent surplus roll onto the provincial debt on Friday, as a once-in-a-generation cash windfall for the provincial government comes to an end.

The money sounds impressive, but it will be only a small drop in a bucket of government debt that is staggering in its size.

Taxpayer-supported debt has doubled under the New Democrat government, rising from $44 billion in 2017-18 to a projected $76 billion this year, and then as much as $100 billion in 2025-26, according to last month’s provincial budget.

The global figures, on their own, appear to leave the government open to criticism.

“We absolutely have huge concerns,” said Opposition BC Liberal critic Peter Milobar.

“It took us about 140 to 150 years or so to go from zero debt to $50 billion worth of provincial debt. In six years this NDP government has taken us from $50 billion of debt to $100 billion of debt. So you know, it's accelerating.”

The argument is technically true. But context, when it comes to debt, is required.

As B.C.’s debt has grown, so has its provincial revenue, and so has the economy. In household terms, if the debt is like your mortgage, then you can keep borrowing more as long as your salary (in this case the economy) grows too.

Which is why economists look at ratios to put into perspective the eye-wateringly large debt numbers. And when you bring those in, B.C.’s current debt levels, start to look less alarming.

The most commonly-used metric is called the debt-to-GDP, to show the debt as a share of economic growth. B.C.’s rate is budgeted at 18.9 per cent this coming year – higher than last year’s 16.4 per cent. However, the number goes up and down with the economy’s highs and lows. It’s not far off the 18.1 per cent in 2013-14 under former premier Christy Clark’s B.C. Liberal government, for example.

The other metric is debt-to-revenue, to link the money that the government brings in via taxes and fees to its debt load. That’s projected to hit 100 per cent this year – a big jump from 80.6 per cent before the pandemic in 2019-20. But it’s not unprecedented either. It was 110.3 per cent under the government of Gordon Campbell in 2002-03, for example.

When you put all of that in context, it’s perhaps not surprising to hear Finance Minister Katrine Conroy argue B.C. is in a fine position to keep borrowing to fund the premier’s ambitious capital plan to build more schools, hospitals, highways and universities.

“We definitely can afford it,” Conroy said in an interview. “That’s not just coming from me, but from the credit rating agencies and bankers.”

This is true as well.

Independent credit rating agencies DBRS Morningstar and Moody’s noted after last month’s budget that B.C has a long track record of outperforming its estimates, delivering lower deficits and debt, and generally backstopping its borrowing with strong economic growth. Neither have any serious concerns about provincial debt levels.

Both also cited how the budget is well-protected with $4.8 billion set aside in contingencies, as a possible recession nears. Debt rates are much lower than most other Canadian provinces, as well.

“We know we’re going to be able to weather this storm,” said Conroy.

“It’s an investment. It’s a cost but an investment, is how you look at it. If you renovate your house, you are adding an area to your house. And if you take out a mortgage to make that renovation, you take it out ensuring you can afford it. That’s what we’re doing.”

Economists have had relatively few complaints about the B.C. NDP government’s handling of finances since John Horgan took office in 2017. The Horgan administration, under then finance minister Carole James, kept spending in check, at times earning kudos from the business community.

The Eby administration, however, is different.

The new premier is presiding over a huge hike in spending, as he seeks to tackle public dissatisfaction in health care wait times, public safety, cost of living and climate change, before next year’s provincial election

“Our starting point was favourable, so that gives us room,” said Jock Finlayson, a veteran economist at the Business Council of British Columbia.

“There’s a lot of debt being taken on. Is it affordable? Yes. Are we going to hit the wall in terms of fiscal terms? Absolutely not. There are a lot of other provinces struggling with bigger challenges because their debt levels are much higher.”

Still though, what are acceptable debt levels this year for B.c., start to look very different only two years into the future.

The Eby government continues to ramp up spending into 2025/26, predicts the budget. There are so many building projects, and so much debt, that B.C.’s debt-to-GDP ratio jumps to 23 per cent – the highest rate in at least 20 years, if not longer.

The same for debt-to-revenue, which would jump to 125 per cent by 2025/26 – much higher than anything B.C. has seen in modern history.

In short, the future starts to look less rosy.

“It certainly isn’t a sustainable approach,” said Finlayson. “You aren’t going to be able to continue beyond this fiscal plan into the second half of this decade – there’s no way the province is going to be able to borrow money and accumulate debt on the scale of this fiscal plan.

“If we are growing out taxpayer debt by two-thirds, it’s pretty clear we’re not going to be able to go out and buy another two-thirds in the half-decade that starts in April 1, 2026.

“Or if we are, the politicians have to come clean on how it's going to be paid for and what the risks are.”

Further complicating the debt analysis is the fact it’s hard to judge a current government’s impact on debt affordability until years down the road.

For example, B.C. hasn’t got sideswiped by rising interest rates this year, like an ordinary household would on its mortgage. Much of the $60 billion in debt financed until now came from bonds and treasury bills with three, five or even 10 year terms, using interest rates much more favourable than today.

Even now, government gets access to financing at much better rates than the general public. That means, only 2.9 cents from every dollar of revenue the province brings in goes to servicing its debt in the coming year – which is actually less than the 3.3 cents per dollar when the NDP started ramping up borrowing in 2017. In the early days of the BC Liberal government, it was almost eight cents a dollar of revenue.

It will be many years down the road before B.C. voters see the impact of all of today’s borrowing, said Finlayson. By then, we could have an entirely different government, promising entirely different things, on an entirely different spending scale. Next year is a provincial election year, where spending promises tend to ramp up dramatically.

“We will see further out into the next decade, and following decade, a sizable jump in the burden of interest payments,” said Finlayson.

“It’s going to go up. But most of the rise will be occurring later in the decade, not in the period of this three-year plan.”

That’s a relief for the Eby government, no doubt, and it’s enormous spending plans.

It can borrow like crazy right now and say with a straight face that the province can afford it – because, right now, it can.

One day though, in the not-so-distant-future, that will change. Of course, by then, in the great buck-passing exercise that is political accountability, the debt load will likely be some other premier’s problem to figure out.

Rob Shaw has spent more than 15 years covering B.C. politics, now reporting for CHEK News and writing for Glacier Media. He is the co-author of the national bestselling book A Matter of Confidence, host of the weekly podcast Political Capital, and a regular guest on CBC Radio.

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