British Columbia Sees Slower Growth as Headwinds MountBy
Canadian province’s budget forecasts narrowing surpluses
Rising risks from U.S. lumber dispute, housing slowdown
British Columbia forecast slower economic growth and a narrowing budget surplus over the next three years as a cooling housing market and trade disputes pose mounting headwinds for Canada’s fastest-growing province.
B.C. Premier Christy Clark still promised to post another three years of surpluses, allowing her to announce some relief to taxpayers ahead of a May election, when she will seek a third term as premier of Canada’s third most-populous province. The budget released Tuesday includes cuts to healthcare premiums for consumers and plans to eliminate a retail sales tax on electricity for businesses. The province will invest a record C$13.7 billion ($10 billion) over three years in roads, schools and healthcare facilities, with transportation accounting for a third of the spending.
The province’s budget surpluses are narrowing as Clark’s government boosts spending to improve housing, public services and transportation. While B.C. is expected to have outperformed other provinces in 2016 for the second straight year, downside risks include uncertainty in the U.S., slower growth in Asia, and a decelerating provincial housing sector, according to the budget.
“We can’t forget that there continue to be risks that could erode our strong economic position,” Finance Minister Michael de Jong said in Victoria as he presented the budget.
The fiscal plan projected a C$1.5 billion surplus in the year ending March 31, down from C$2.2 billion estimated in November. That’s set to plummet through to 2020 with a forecast of C$295 million surplus in 2017-18, C$244 million in 2018-2019 and C$223 million the year after. Following a 3 percent expansion this year, economic growth is pegged to slow to 2.1 percent in 2017 and 2018, and 2 percent in 2019.
The province, a major trade gateway to Asia and home to Canada’s largest port, has traditionally benefited from mining and lumber exports, and more recently, as a growing tech and media hub for U.S. companies seeking world-class talent, lower salaries and easier immigration rules.
That outlook, however, has clouded. A softwood lumber spat with the U.S. threatens potential duties on the province’s biggest export commodity. B.C. exported C$4.6 billion of softwood lumber to the U.S. in 2016, more than quadruple what it sent to its second-biggest market, China, according to B.C.’s statistics agency.
“Political changes in our neighbors to the south have us cautious about making too many assumptions about the future,” De Jong said. B.C. has reduced its dependence on the U.S. as a market to 54 percent of its merchandise exports compared with 70 percent in 2001. “But make no mistake, the U.S. remains our largest single trading partner, and any interruption in that trade will impact us.”
A booming housing market has also been a major driver of Canada’s only AAA-rated province in recent years. The government has faced the challenge of addressing growing affordability concerns, while also managing a slowdown in Vancouver, the nation’s priciest market. Housing starts in the province in January plunged 17 percent from 12 months earlier, according to the budget.
The government imposed a 15 percent tax on foreign buyers in Metro Vancouver in August in an effort to temper soaring prices. That helped suppress the participation of overseas buyers to about 3 percent to 5 percent of transactions compared with as high as 17 percent earlier, De Jong said. The budget forecasts C$100 million in revenue from the tax this fiscal year – double a previous estimate -- and C$150 million in each of the next three years.
Tuesday’s budget also announced a boost in the threshold for first-time buyers to claim an exemption on property transfer taxes by C$25,000 to C$500,000.
“This really is the people’s budget,” De Jong said. “It’s about giving back.”
The province will cut healthcare premiums by half starting Jan. 1 for households with annual net income up to C$120,000, and may consider eliminating them entirely in the future, De Jong said. A tax on electricity purchases by businesses will be eliminated over the coming two years. That could provide incentives to more than 20 liquefied natural gas projects proposed in the province and encourage them to use electricity for compression, according to the government.
New borrowing will rise to C$5.8 billion in the coming fiscal year, from C$3.2 billion in the current year, according to the budget. The province sourced half of this year’s borrowings from overseas markets, including the U.S., Europe, Australia and bonds denominated in the Indian currency. It expects to look at similar opportunities in the coming year, such as further sales of Panda bonds in China’s domestic interbank market.
Provincial debt will rise in the coming fiscal year to C$70 billion, from C$67 billion for the year ending March 31. Debt will increase to C$73 billion by the 2019 fiscal year, the government said.
Program spending is forecast to jump 2.3 percent to C$50.2 billion from C$49.1 billion. Revenue will remain stable at C$51 billion.
B.C. is on track to eliminate operating debt in the fiscal year ending March 2021, which would be the first time since 1975-1976, according to the budget.