British Columbia should be able to pull off several balanced budgets in a row if it can hold down growth in health and education spending, says the Conference Board of Canada’s British Columbia Fiscal Snapshot.
“B.C. was one of only two provinces to report a budget surplus in fiscal 2013–14, along with Saskatchewan,” says Matthew Stewart, associate director of Canadian Outlook at the Conference Board. “As the latest budget indicated, fiscal restraint is the new norm in British Colombia. Strong economic growth will boost revenues over the next four years, setting the province up to run surpluses through 2017. To maintain the budget in a surplus position, however, B.C. will need to keep growth in program spending in check.”
Economic growth has been slow in British Columbia over the past few years, but the province’s real gross domestic product will advance at a slightly faster pace than the national average in 2014 (2.3%) and 2015 (2.9%). The forestry sector is benefiting from renewed demand for housing in the U.S. and from its ability to capitalize on growing markets for wood products in China. The mining sector will continue to boost B.C.’s economy, but growth is set to decelerate over the near term.
The latest provincial budget indicates that the government plans to keep growth in health care expenditures to a modest 2.6% annually on average—a task that will require significant reforms and efficiency gains in the sector. The Conference Board’s projects that without reforms, health care spending in B.C. would have to grow by an average pace of 4.3% per year over the next three fiscal years just to keep pace with inflation and demographic changes in the province.
This same holds true for program expenditures on education. In its 2014 budget, the government announced its intention to cap education spending growth at just 0.6% per year over the forecast period—a rate of growth that has only occurred once in the last 10 fiscal years.
The Conference Board projects that education spending, based on average real spending per student, projections for enrolment, and inflation in the education sector, would need to increase by an annual average rate of 2.7% to maintain real spending per student. The difference in growth rates between our analysis and the government’s budget projection translates into $1.6 billion more in education expenditures for the next three fiscal years. To close the projected funding gap, changes would be required in how public education is delivered.
After adjusting the data to account for B.C.’s demographic composition, health spending per capita is much lower than in most other provinces. The province’s education spending on the other hand, on a per-student basis, is above the national average.
If the province is successful in its expenditure control, the Conference Board forecast suggests that the surplus achieved in 2013–14 will continue to increase to nearly a billion dollars annually by fiscal year 2016–17.