British Columbia plans to boost borrowing to help fund programs including its biggest-ever climate-action plan, undeterred that a housing slump poses a significant risk to the economy.
The province expects new borrowings to rise to $7.5 billion in the coming fiscal year, up from $6.3 billion in the current year, according to budget documents presented Tuesday in Victoria by Finance Minister Carole James. The fiscal plan forecasts economic growth of 2.4 per cent this year, putting British Columbia on track for the strongest expansion among Canada’s provinces this year, according to data compiled by Bloomberg.
Premier John Horgan’s New Democratic Party government appears to be staying the course, undaunted by plunging home prices in Canada’s most expensive market. Last year, his government unveiled a series of dramatic measures to temper property prices -- including a speculation tax and hiking a levy on foreign buyers. Those moves, along with tighter lending requirements and rising interest rates, have prompted a slowdown in Vancouver residential real estate, traditionally one of the province’s major economic drivers.
James welcomed the housing downturn Tuesday, saying that’s exactly what the government had intended -- and indicated that further declines were still necessary to make homes affordable in the province’s biggest cities.
"I’m cautiously optimistic when I take a look at the moderation we’re seeing in all segments of the market," she said. "That’s exactly the kind of approach that we’ve been looking for."
Budget documents noted that the government’s measures helped reduce the benchmark price for a detached home in Vancouver by 8.3 per cent over the past six months and condominium prices by 6.6 per cent. James said despite that, housing starts are still "well above" the historic average.
Asked if the downturn had run its course, James replied, "I think there’s more to go. I don’t think anyone in the Metro Vancouver-area would classify housing as affordable at this stage."
The province’s fiscal plan forecast a $274 million surplus in the next fiscal year, following a projected $374 million surplus in the year ending March 31. The surplus is expected to increase to $287 million in 2020-21 and $585 million in 2021-22, according to the budget.
"British Columbia’s economy is thriving," James said. "Budget 2019 puts money back into the pockets of British Columbians."
She announced plans for $400 million in child care-related grants and $902 million on climate action, the largest such investment in the province’s history, to help fund electric vehicle subsidies and home energy retrofits. The province also continues with a record $20.1 billion plan for investments in health, transportation and education over the next three fiscal years.
Economic growth was pegged at 2.2 per cent in 2018. Meanwhile, unemployment is 4.7 per cent, the lowest in the nation, and wage growth is at 4.1 per cent, the highest rate in a decade, according to budget documents.
Still, the rosy outlook isn’t without its pitfalls. The government revised its previous growth forecasts upward in part due to approval of Canada’s largest private infrastructure investment in the province, a $31 billion liquefied natural gas project led by Royal Dutch Shell Plc. Yet that project remains mired in uncertainty amid a legal challenge questioning the constitutionality of its permitting process.
Meanwhile, British Columbia was Canada’s worst-performing province for home sales in January, while manufacturers are feeling the pinch from a weakening trade environment, including U.S. tariffs on lumber, one of the province’s biggest exports, according to a Central 1 Credit Union economic briefing last week.
The province faces external risks, but the government is seeking to mitigate that in part by diversifying the economy and "not simply relying, for example, on a speculative real estate market which doesn’t help grow a sustainable economy," James said.
In either case, she added: “I don’t believe we’re going to see a crash in the housing market. We continue to see moderation -- that’s what we’re looking for."