The First Quarterly Report for the 2021-22 fiscal year shows the economic impacts of COVID-19 in B.C. The Province is forecast to end the fiscal year with a deficit of $4.8 billion, which is an improvement from the Budget 2021 forecast deficit of $9.7 billion, due to an improving labour market, increased natural resource revenues and higher federal government transfers.

Economic highlights:

• B.C.'s real gross domestic product (GDP) is forecast to grow by 6.0% in 2021 and 4.0% in 2022, an upward revision from Budget 2021 growth projections of 4.4% and 3.8% respectively.
• After experiencing substantial job losses at the beginning of the pandemic, the B.C. labour market has shown signs of continued improvement, and total employment has now surpassed pre-pandemic levels. B.C.’s unemployment rate for August is 6.2%, down from over 13% following the onset of the pandemic, and lower than the national average of 7.1%.
• Retail sales in 2021 have remained strong, are 13.0% above pre-pandemic levels and are forecast to continue growing in 2022.
• B.C.’s housing starts reached a record high in March 2021 and have remained well above historical levels through July 2021.
• B.C.’s real estate market has fluctuated since the start of the pandemic, with unit sales hitting all-time highs in March 2021, followed by four consecutive monthly declines between April and July 2021. Despite the decline, home sales remain elevated.
• Factors such as strong demand, low interest rates and low inventory are contributing to increased house prices across Canada.
• As of Aug. 6, 2021, an average of six private-sector forecasters expected B.C. real GDP to grow by 6.3% in 2021 and grow by 4.3% in 2022. This is better than the expected growth of 6.1% on average across Canada for 2021 and the 4.2% growth expected nationally for 2022.

Operating results:

• Revenue for 2021-22 is forecast to be $65.2 billion – $6.2 billion higher than the projection in Budget 2021 – primarily due to an improved economic outlook, higher-than-expected 2020 income tax returns and improved natural resource revenues.
• Contributions from the federal government are higher mainly as a result of $676 million in one-time pandemic relief funding and $87 million in new funding under the Canada-Wide Early Learning and Child Care Agreement.
• Expenses are forecast to be $1.4 billion higher at almost $69 billion, largely due to provincial wildfire response and expenditures. Other expense forecast changes reflect increased spending in health authorities and other service delivery agencies, as well as spending under the federal-provincial child care agreement and funding improvements in long-term care facilities.
• Of the $3.25 billion in the Pandemic and Recovery Contingencies allocated in Budget 2021, more than $2.5 billion has been allocated to support programs and services.
• This includes funding for additional measures since Budget 2021, including $325 million allocated for the COVID-19 paid sick leave employer reimbursement program, a $275-million increase in allocations to the Small and Medium Sized Business Grant program to accommodate increased demand and Circuit Breaker Business Relief Grants, and $26 million to support return-to-school measures in the K-12 sector.
• No changes are made to the $1.0-billion forecast allowance due to continuing forecast uncertainty over the remainder of the year.

Capital spending:

• Taxpayer-supported capital spending on hospitals, education facilities, transportation infrastructure, housing and other projects is forecast to total $8.2 billion in 2021-22, which is $0.3 billion lower than the Budget 2021 forecast.
• This is mainly due to timing changes of projects in the transportation and post-secondary sectors.

Risks to the fiscal plan:

The main risks to the government’s fiscal plan include:

• ongoing health-related uncertainty as a result of the pandemic, including the extent of the spread or containment of the virus in B.C. and around the world;
• uncertainty relating to the pandemic and the path of the economic recovery, which contributes to the potential volatility in the economic and fiscal outlooks;
• assumptions underlying revenue and Crown corporation forecasts such as economic factors, commodity prices, 2020 income tax assessments and weather conditions;
• potential changes to federal government transfer allocations, cost-sharing agreements with the federal government and impacts on the provincial income tax bases arising from federal tax policy and budget changes;
• spending pressures for costs associated with responding to emergencies such as wildfires and floods; and
• the need for additional pandemic and recovery supports, as well as utilization rates for government services such as health care, children and family services, and income assistance.

Debt levels:

• Governments, like the private sector, borrow to finance the building of long-lasting capital infrastructure, such as schools, hospitals and highways. In recent years, B.C. has had among the best debt metrics and credit ratings compared to other Canadian provinces.
• Government’s key debt affordability metric, the taxpayer-supported debt-to-GDP ratio, is forecast to improve from Budget 2021 due to lower debt balances resulting from lower deficits, as well as higher GDP projections.
• Taxpayer-supported debt levels are projected to reach $65.2 billion by the end of the fiscal year – $6.4 billion lower than forecast in Budget 2021.
• The taxpayer-supported debt-to-GDP ratio is forecast to reach 19.6% in 2021-22, down from the Budget 2021 forecast of 22.8%.
• Despite the need for increased borrowing and higher debt levels, B.C. will continue to benefit from low interest rates partially due to the Province’s good credit ratings.
• In 2021-22, the “interest bite” is projected at 3.0 – this means that 3.0 cents per dollar of B.C.’s revenue will go toward paying interest.
• As a result, the Province’s debt remains affordable.
• B.C. continues to be the highest rated among all the Canadian provinces by the three main international rating agencies.