Red is the new black? - The Orca

Red is the new black?

Rob Shaw 2

Rob Shaw: BC reporting “only” a $5.5 billion deficit shows just how much has changed during the pandemic.

The B.C. government’s finances were sideswiped by the sudden emergence of COVID-19 last year, but the province managed to avoid drowning in red ink because of an unlikely triumvirate of bright spots: A remarkable turnaround at the Insurance Corporation of B.C., an unstoppable housing market, and the deep pockets of the federal government.

Finance Minister Selina Robinson laid it all out in her public accounts report this week, which showed B.C. ended the 2020-21 fiscal year with a $5.5 billion deficit.

That doesn’t sound impressive until you consider B.C. started the year in February 2020 with a projected $227 million surplus, watched the financial floor fall out from under it in March as the world reeled with COVID-19, and was in December predicting the deficit could be as high as $13.6 billion.

So, $5.5 billion isn’t so bad, all things considered.

“I’m pleased to say that, given the extraordinary and uncertain times that we were all dealing with this last year, the year-end provincial financial statements look significantly better than our worst case scenario projections,” said Robinson.

The public accounts described some obvious impacts the pandemic had on the provincial treasury up to March 31, 2021: Revenues cratered and then recovered as the economy rebounded over the course of the year, and the government was forced to spend big (an eye-watering $10.1 billion) to fund the health care, social programs, and economic recovery supports needed through the worst health crisis in recent history.

Three financial white knights helped the B.C. treasury recover.

The first, and arguably most important, was the federal government, which took on much of the heavy lifting when it came to emergency programs like the $2,000 monthly CERB cheques and also provided direct financial aid to provinces like B.C.

Ottawa funnelled out $2.6 billion to the province, which was one of the single largest net positives on the provincial books last year.

Then there was the housing market, which proved not even a worldwide crisis could slow it down by rebounding to new heights after only a few off months last year.

Red-hot real estate accounted for almost $2.1 billion in revenue from the property transfer tax (government’s take on all real estate transactions), which was $489 million more than expected.

That’s easy and much-needed cash for the provincial treasury – even if it comes at the expense of undermining the BC NDP’s promises to make housing more affordable and means this government, just like the previous BC Liberal government, continues to milk the golden cow of real estate.

Finally there’s ICBC, once a “dumpster fire” and now, apparently, a pot of gold.

The Crown auto insurer posted $1.5 billion net income, a stunning turnaround for an organization that lost almost $2.5 billion in previous years and had become the ugly duckling of provincial Crown corporations.

ICBC credited the new no-fault insurance system implemented by Attorney General David Eby, as well as a 30 per cent drop in crashes and claims due to fewer people driving in the pandemic.

Private injury lawyers have been crying foul on the shift to no-fault for months, but it looks like Eby’s reforms (and fewer people driving) not only saved ICBC but went a long way to salvaging the province’s finances in the pandemic as well.
Despite the good news from those three areas, Robinson faced questions about what the future will hold for the current 2021-22 year’s budget and its $9.7 billion deficit forecast.

If Ottawa starts to turn off the taps for economic aid, what will B.C. do to compensate?

And how long exactly does B.C. expect to run deficits before it projects to get back into balance?

Robinson had no immediate answer for either question, though a news release that accompanied the budget predicted shrinking deficits over the next three years at least.

“It will take time with concerted efforts around managing expenses and addressing revenues, making sure that we’re maximizing revenues, to address the deficit,” she said.

“And it will take time to get back to balance. That’s our commitment, is to get back to balance. But we also want to make sure that services continue to be there for BCers.”

She also added ominously: “The other thing to keep in mind is that we’re not out of this pandemic.”

A recent cluster of cases in the central Okanagan proved that warning quite well this week, forcing the province to reinstate mandatory masks in the region, speed up vaccination timelines and discourage travel. It’s a reminder B.C. still has a long way to go before the pandemic is truly over.

In the meantime, the Opposition BC Liberals tried to use the deficit figures to reignite the idea that the BC NDP are poor fiscal managers.

“The numbers we saw today were not unexpected, but what is truly staggering is that this government still does not have a plan to restore the health of our economy,” said finance critic Mike Bernier.

“The NDP had plenty of time to prepare a plan to deal with the post-pandemic reality and get our economy back on track, but they have nothing to show for it.”

The opposition pointed to B.C.’s rising taxpayer-supported debt, which stood at $47 billion prior to COVID-19, grew to $60 billion last year and is forecast to rise to $93 billion by the third year of the fiscal plan presented in April’s budget.

That’s a doubling of debt in fewer than five years, though Robinson argued it remains affordable when viewed as a ratio with B.C.’s economy and revenue, as well as due to low interest rates.

It’s too early to tell whether the BC Liberal attacks on financial mismanagement will stick. They certainly did not during Carole James’ tenure as finance minister, when she balanced the books with the kind of spending plans that earned kudos from the business sector.

But COVID-19 has changed all that. It blew up the idea of balanced budgets in the short term, not just in B.C. but also across the world.

Robinson has some room to maneuver in charting B.C.’s economic future, even if it remains in the red. For now. She said she’ll provide a clearer path next February on how to get the province back into the black.

Rob Shaw has spent more than 13 years covering BC politics, now reporting for CHEK News and writing for The Orca. He is the co-author of the national best-selling book A Matter of Confidence, and a regular guest on CBC Radio.