British Columbia Budget Dismays Businesses While Investors Shrug

  • Left-leaning New Democratic Party releases first full budget
  • Credit still strong despite big spending, borrowing plans

The first full budget of British Columbia’s new left-leaning government, which hikes taxes to support a spending spree, prompted dismay from business lobbies while investors were more sanguine.

Premier John Horgan’s New Democratic Party government, which won a dramatic election last year on vows to make life more affordable for residents in the Canadian Pacific province, announced on Tuesday more than C$18 billion ($14 billion) of planned investments in childcare, housing and infrastructure over the next three years. To help fund that, new borrowings in this fiscal year starting April are set to jump fourfold to C$7.7 billion.

B.C. government bonds barely budged as investors digested the government’s pledges: to remain in surplus through to 2021 and to cover higher spending with revenue from new taxes.

“The budget does take a bit of a turn to the left to make the province a bit more affordable to live in, but it does not come at the expense of bondholders,” said Hosen Marjaee, who oversees Canadian fixed income at Manulife Asset Management in Toronto and is overweight British Columbia bonds. “The credit is still very strong AAA.”

New Measures

The province’s Canadian dollar bonds due in 2048 were quoted at 64 basis points above similar-maturity federal government debt on Wednesday, the tightest spread for any Canadian issuer in that tenor. It’s U.S. dollar bonds maturing in 2022 traded at 96.1 cents on the dollar on Wednesday, compared with 96.2 cents just before the release of the budget on Tuesday, according to Trace bond price data.

B.C. Finance Minister Carole James announced a new health tax on employers, a new levy on property speculators, as well as a hike in the foreign-buyers’ property tax to 20 percent from 15 percent as part of the fiscal plan. Combined, the new measures will bring the government extra revenue of C$880 million this fiscal year and C$2.2 billion the following year, according to budget documents.

“The new budget will do little to boost business investment,” said Jock Finlayson, chief policy office of the Business Council of British Columbia. Compared with their U.S. counterparts, B.C. businesses on average invest less than 60 percent per employee in machinery, equipment and other assets that boost productivity, he said. The Greater Vancouver Board of Trade gave the new budget a grade of C+, saying an increasing tax burden would stifle businesses.

Both said the government’s projected surpluses were slim and its economic growth projections may be optimistic.

But Warren Lovely, head of public sector strategy at the National Bank of Canada, said in a note to clients, “Ample prudence has been set aside.”

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