Abstract

British Columbia’s economy and finances have been strong in recent years. But an aging population and declining real-estate activity may, over the medium and long run, create pressures that current policy is not well equipped to handle. This paper estimates the long-run fiscal situation for the province and finds the status quo unsustainable. Revenue growth lags behind both the overall economy and program spending. The gap between spending and revenue will, over time, lead to unsustainable debt levels. Immediate and permanent increases in revenue or decreases in spending on the order of 3% of GDP are necessary to ensure that B.C.’s debt-to-GDP ratio does not grow without bound. This is equivalent to increasing sales taxes by 8 percentage points or decreasing program spending by nearly 17%. Roughly half the long-run gap between projected revenue and spending is due to slow revenue growth and the other half due to rising health expenditures. Though status quo policy is unsustainable, a wide variety of policy responses are available. This report explores several long-run fiscal scenarios to examine the challenges facing the province, the wide variety of policy responses, and the scope for new large-scale spending initiatives like a basic income program. Gradual changes made today will not only ensure fiscal sustainability but also allow the province to consider expanding social spending programs in a responsible manner.