British Columbia’s 2025 provincial budget arrived just over four months after the October 2024 BC election but in the interim the world has changed. The post-election period featured the BC NDP initiating a cooperation agreement with the BC Green Party to shore up the NDP’s razor-thin legislative majority. While this agreement led to policy commitments in 11 areas of public policy, there is little evidence of those commitments in the 2025 budget.
Instead, the spectre of Donald Trump hangs over the budget like an uninvited guest making a mess at the dinner table. BC’s principal challenge in 2025 will be to stay the course as a progressive government while dealing with the fallout of the first wave of Trump tariffs, which were implemented on budget day. Even before the tariffs impact, the Trump administration created a climate of extreme uncertainty with businesses more likely to put off new investments or planned expansions in BC and Canada.
The BC budget repeats recent plans to fast track resource development projects and commitments to improve trade relationships among the provinces. Neither of these amount to much in terms of economic impact right away and, if anything, the internal trade conversation is a diversion with politicians making big talk for what are really, very minor issues around differences and regulation across the provinces. Indeed, in the mid-January release of ministerial mandate letters the topic of internal trade barriers appeared exactly zero times.
Focus on fiscal policy
The real action of the BC Budget is the government’s stance on fiscal policy, in terms of its overall budget balance plus new capital spending. The projected operating deficit in 2025-26 will be a record $10.9 billion, and adding in capital spending, public debt will rise by $23.6 billion to $156.6 billion, or 35.2 per cent of GDP.
While this public debt-to-GDP ratio represents a jump of four percentage points of GDP compared to 2024-25, BC’s debt load still compares very favourably to other provinces. About a quarter of that amount is for self-supporting Crown corporations like BC Hydro that have their own revenue sources. And the cost of servicing total provincial debt—the “interest bite”—remains reasonable at 5.2 cents per dollar of revenue.
Many media and business commentators are lamenting this large deficit and higher debt, seeking government belt tightening. However, it is important to recognize that the government is not a household or a business. When the private sector economy turns down, government needs to be counter-cyclical, running deficits to inject money into the economy and prevent a recession from turning into a full-blown depression.
BC’s operating deficit is thus better viewed as a stimulus of 2.4 per cent of GDP, and total capital spending 4.5 per cent of GDP. These amounts are significant and appropriate to support the economy. In the operating budget, $4 billion (almost one per cent) of GDP are simply stated as contingencies. If the Trump tariffs are removed in short order, this means most of those contingencies would go to reducing the budget deficit. In light of the uncertainty of the current moment, this is a sensible approach, albeit one that leaves question marks around how those funds will be expended.
BC’s bottom line could get much worse. The budget’s economic projections underpinning the fiscal forecast is strangely out of sync with the looming impact of tariffs on BC exports along with higher prices from Canadian retaliatory tariffs. For example, the Ministry of Finance’s economic projections foresee an increase in BC’s real GDP growth from 1.2 per cent in 2024 to 1.8 per cent in 2025 (and nominal GDP growth from 4.1 per cent in 2024 to 4.3 per cent in 2025). And business investment is anticipated to increase by 5.1 per cent in 2025 compared to 2.7 per cent in 2024.
These numbers seem like wishful thinking in light of the Trump tariff shock along with demographic changes that will flatten population growth this year and next. In other words, expect worse numbers when the Ministry of Finance tables its First Quarterly Update in September, if the trade war continues.
Another source of uncertainty is the federal government’s fiscal response, given that it may be several months and on the other side of a federal election before a federal budget is tabled. Faced with such a massive economic shock the federal government should step up to do more of the heavy lifting around economic stimulus, as it did during COVID-19 in 2020-21 and the financial crisis of 2008-09.
Lost in the slipstream of the budget is a broken election promise from October. Earlier this year, the BC government announced it was not moving ahead with its promised grocery rebate of $500 for individuals and $1000 for families. Once fully phased in, this promise would have cost almost $2 billion per year through changes in income tax rates. The grocery rebate was ultimately an election gimmick and in spite of the broken promise, dropping it is clearly the right thing to do. Those funds would be much better targeted to households adversely affected by the tariffs on a sectoral basis.
Housing takes a step back
Another big election commitment—a promise to cover 40 per cent of a mortgage for up to 25,000 first-time homebuyers—is also conspicuously absent from the budget. The December 2024 NDP-Green Agreement also promised 30,000 new non-market units over the mandate of the government, with 7,500 in 2025 alone. The agreement also plans to recapitalize the Rental Protection Fund that enables non-profits to purchase rental housing at risk of redevelopment, and this is also missing from the 2025 budget.
Stronger provincial commitments to much-needed non-market housing do not figure in the budget. An exception is a modest boost ($318 million over three years) to the lauded but undersized BC Builds program, which uses public and community land, low-cost financing and grants to develop non-market housing aimed at middle-income families. BC Builds is fairly new and with only 1,400 units in progress is little more than a pilot project.
The budget does uphold one key area of the NDP-Green Agreement to expand provincial rental support programs, the Rental Assistance Program (RAP) aimed at working poor families and the Shelter Aid for Elderly Renters (SAFER) for seniors. In both cases the income threshold to qualify has been increased (to $60,000 for RAP and $40,000 for SAFER) as has the average monthly supplement (to $700 per month for RAP and $337 for SAFER).
The budget also counts on a recovery in BC’s housing market due to lower interest rates. However, this misses some key shifts in the housing market. With so much emphasis on new supply in recent years, a substantial number of units (86,700) are under construction but are coming onstream as population growth will be near-zero this year and next. This could lead to a correction for BC housing as we are seeing in Toronto and more recently in Calgary.
Moreover, as new units are completed, there are not many new projects starting up to absorb those construction jobs. With this outlook, there is a missed opportunity for the BC government to step up new affordable housing projects that build the housing low- to middle-income households need while keeping workers employed. Recessionary impacts from the new trade war will worsen this underlying situation.
Core social spending
Some three-quarters of the BC budget is allocated towards healthcare, education and social services. These areas received modest increases in Budget 2025 but areas outside of the core were more curtailed. Interestingly, the budget for social services increased by 5.1 per cent, exceeding the 4.5 per cent increase in the health care budget for the first time.
While budgetary support in health care has generally been strong in recent years, pressures remain within the system, as one in five households lack a regular family physician. Many health professionals are looking increasingly to structural solutions like enhancing primary care, in particular through investments in community health centres (CHCs). The NDP-Green agreement specifically mentions increasing the number of CHCs, along with other primary care initiatives. Unfortunately, new measures to develop CHCs are not in Budget 2025.
In the education sector, both K-12 and post-secondary got a modest boost in funding. However, an increase of 2.6 per cent after inflation represents essentially no new real funding. Of particular concern is post-secondary education with a major drop off in foreign students in 2025 due to changes in federal immigration policies. Many post-secondary institutions have increased their revenues through foreign enrolment due to the much higher tuition fees, and these institutions are now looking at layoffs of instructors as foreign enrolment has dropped. Strangely, the budget has nothing to say about this budget crisis in post-secondary.
Child care investments also appear to have stalled, with this year’s budget freezing funding levels. Policy-makers made big promises over the past few years towards $10 a day childcare, but in reality only a small handful of spaces have been created at that rate. The overall expansion of childcare, infrastructure, and staffing needs to be a top priority going forward. This shortchanges the province’s long-term growth in terms of increased female labor force participation and learning outcomes for children.
Social services continue to be under stress and the chronic crises of homelessness, addictions and mental health are manifest on the streets of BC’s cities and even in rural areas. Only modest amounts are included in the budget for these areas. Nor does the budget provide increases to social assistance in spite of the recent jump in cost of living.
Climate and energy policy
The NDP promised during the election campaign that it would seek to eliminate BC’s consumer carbon tax. This measure is not included in the budget, as it sticks with the federal carbon pricing backstop, which will increase from $80 per tonne of CO2 (about 18 cents per litre at the pump) to $95 per tonne (21 cents per litre). However, the federal government will likely soon make a move in this area.
While the carbon tax is expected to increase, there is no planned increase in climate action tax credit (CATC) which goes to low- to middle-income earners to address the regressive impact of the carbon tax. The BC system also pales in comparison to the federal carbon price backstop which flows all revenues from carbon pricing back to households.
Amid wildfires and other extreme weather disasters, the budget contains little in terms of expenditures for resilience or adaptation. Some three and a half years after the November 2021 floods and landslides, which caused $5.5-7 billion in damages to the economy, the government has only put money towards clean-up and some planning for adaptation. Meaningful infrastructure commitments aimed at bolstering BC’s future resilience will ultimately cost billions but funds have yet to flow.
Transit investments in the budget remain limited to already-announced projects like the Surrey-Langley Skytrain project, whereas new commitments have been absent. The NDP-Green Agreement specifically mentions implementing new routes on Vancouver Island, Highway 16 (the highway of tears), Highway 1 and the Sea to Sky corridor. Given the economic downturn, and the completion of big capital projects like the Site C dam and LNG Canada, this is another missed opportunity to highlight new capital projects to keep construction workers employed.
What’s Next?
The BC budget has been upstaged by Trump‘s 25 per cent tariffs on Canadian exports to the United States. The impact of these tariffs will be severe, causing major disruptions in supply chains with ripples across all parts of BC’s economy. The response of businesses and politicians thus far has been to bend but not break to evade the tariffs, hoping for exemptions that allow business as usual to continue. This is no longer tenable.
At the same time, a broader conversation is opening about Canadian economic strategy. BC has long sought to diversify its trade away from the US, and as of 2024, BC’s exports to the US comprised 53 per cent of the total, much lower than other provinces. If trade harassment is ongoing, as it now appears to be, BC will need to craft a more coherent industrial strategy to build on these diversification efforts and develop a stronger and more resilient economy.
