B.C. government sets $12B contingency fund, including U.S. tariff response | Daily Hive

B.C. government sets aside $12 billion in contingency funds, including mitigation for U.S. tariffs

BC legislature in Victoria. (Kenneth Chan)

Against poor structural fundamentals and worsening economic headwinds, especially from the impact of the United States’ tariffs on Canadian goods, the Government of British Columbia anticipates it will see a $10.91-billion deficit for the new fiscal year of 2025/2026, marking a new all-time record that even exceeds the pandemic-time shortfalls.

This is based on the expectation of $84 billion in revenues versus $94.9 billion in expenditures for the new fiscal year.

This annual budget deficit will decrease to $10.2 billion in the 2026/2027 fiscal year and $9.86 billion in the 2027/2028 fiscal year, according to the provincial government’s newly released 2025 budget today.

It is also noted that the deficit for the previous fiscal year of 2024/2025 is now pegged at $9.1 billion, which is $273 million lower than what the Fall 2024 provincial budget update had anticipated.

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Ahead of today’s public announcement, there was some speculation that the deficit for the new fiscal year could be in the ballpark of considerably over $10 billion from a combination of poor structural fundamentals and the U.S. tariffs.

Although the deficit is at a historic high, it is lower than anticipated due in part to new tariff scenario assumptions.

In mid-January 2025, the provincial government released its tariff impact forecast through 2028, expecting $69 billion in real GDP cumulative losses, and 124,000 fewer jobs, with the unemployment rate rising to 6.7 per cent in 2025 and 7.1 per cent in 2026 — up from the average of 5.6 per cent in 2024 and 6 per cent in January 2025.

Corporate profits in this previous forecast would also drop by $3.6 billion to $6.1 billion per year, while provincial government revenues will drop by $1.6 billion to $2.5 billion per year.

However, the 2025 B.C. Budget provides an updated tariff impact scenario based on numerous new inputs and revised factors. Although the impacts are still very severe, they are somewhat blunted by lower U.S. tariffs than originally anticipated and a change in Canada’s mitigation and retaliatory measures.

In its revised tariff impact forecast, through 2029 (instead of 2028), the provincial government now anticipates $43 billion in real GDP cumulative losses and 45,000 fewer jobs, with the unemployment rate rising to 6.4 per cent in 2025 and 6.7 per cent in 2026.

Furthermore, corporate revenue decreases have been revised from $3.2 billion to $5 billion per year, and government revenue impacts could be up to $1.4 billion — but reaching as high as $3.4 billion when combined with economic impacts in the Budget 2025 base case.

There is a continued expectation that the economic impacts and job losses will continue to be concentrated in natural resources, natural resources-related manufacturing, and other export-oriented industries, as well as transportation and retail.

The mid-January 2025 forecast of tariff impacts was based on a 25 per cent U.S. tariff on all Canadian goods, but this has now been revised to a 10 per cent U.S. tariff on Canadian energy products and 25 per cent on all other Canadian goods. As well, there is now an expectation that the Bank of Canada will perform deeper interest rate cuts to further encourage economic spending and investment, and that the federal government will roll out major support programs.

There is also a new strategic pivot, with the federal government now working with the provincial governments to remove historic interprovincial trade barriers between provinces.

“The scenario now assumes that federal government supports would be provided to households and businesses, and the Bank of Canada would lower interest rates in response to a slowing economy,” reads the budget.

“A depreciating Canadian dollar also provides support to export-oriented businesses as the price of their products becomes less expensive and more competitive in the U.S. market. The previous scenario did not assume any fiscal or monetary policy responses or exchange rate movements.”

Against these economic headwinds and uncertainties, sustained high annual budget deficits over the three-year fiscal plan through 2028, and soaring debt, the 2025 budget provides relatively few new spending measures in what can be best described as a budget of austerity in order to focus on maintaining existing services that are core to provincial responsibilities, as well as initiatives and projects that are already in-stream.

The budget is light and short of the range of platform promises made by the BC NDP during the Fall 2024 provincial election campaign.

It also does not provide any specific new operating funding to TransLink to avert its fiscal cliff starting in 2026; Metro Vancouver’s public transit authority has warned that without new funding, it could be forced to perform a steep cut in service levels starting as early as late 2025.

Over the next three fiscal years, the provincial government has set aside $4 billion annually as a contingency fund — a combined total of $12 billion in contingencies through the 2027/2028 fiscal year. This is intended to provide the provincial government with room to introduce new programs and initiatives to blunt the impact of the U.S. tariffs.

The provincial government anticipates that the federal government will take the lead on potential pandemic-style relief programs to address economic and job losses from the tariffs. The provincial government hinted that it could use its contingency funds to fill in the gaps of the federal programs.

This is up slightly from the contingency fund of $3.89 billion in the 2024/2025 fiscal year. Ever since the pandemic, the provincial government has incorporated a significant contingency fund to account for unexpected costs.

“Budget 2025 includes a contingencies fund for costs that are uncertain at the time of building the budget. This may include funding for future provincial tariff response measures,” reads the budget.

“The fiscal plan includes Contingencies Votes estimates of $4 billion in each year of the fiscal plan for which spending requirements cannot be estimated with certainty. These reflect funding set aside for uncertain or unforeseen matters, future initiatives, caseload pressures, and new collective bargaining mandate costs.”

Provincial debt will see a steep increase over the coming years, rising from $133 billion in 2024/2025 to $156.6 billion in 2025/2026 and $208.8 billion in 2027/2028. This includes rising taxpayer-supported debt from $97.7 billion in 2024/2025 to $118.7 billion in 2025/2026 and $166.5 billion in 2027/2028.

B.C.’s debt-to-GDP ratio will rise from 22.9 per cent in 2024/2025 to 26.7 per cent in 2025/2026 and 34.4 per cent in 2027/2028.

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