The following note was sent to ICBA members this afternoon.
A pair of economic earthquakes shook the fiscal foundation of British Columbia today. Here is what you need to know about the B.C. Budget and the Trump Trade War, from our perspective at ICBA.
BC BUDGET 2025-26
Delivered in the first inning of an unprecedented Canada-U.S. trade war that has left Canadians feeling equal parts shocked and betrayed by its closest neighbour and largest trading partner, today’s B.C. Budget was out of date before it was printed. While the budget documents acknowledge the threat of U.S. tariffs (and the B.C. government has published estimates of how a tariff war could affect our economy), the economic forecast underpinning the budget embodies an oddly rosy outlook for the next few years and effectively ignores the bilateral trade war in which we are now embroiled.
Rather than real GDP growth of 1.8% in 2025 and 1.9% the following year – as forecast in the budget – B.C. is likely to experience a near-term recession, provided the just-announced U.S. and Canadian tariffs remain in place for the rest of the year. The economic outlook for 2026 would then depend heavily on what happens on the trade front in the next few months.
Once we factor in the steep American and Canadian retaliatory tariffs, the effect is to render meaningless most of the fiscal projections outlined in the budget. That is alarming, particularly since in the absence of tariffs, the government was planning for a string of epic $10 billion annual deficits through 2027/28, along with a rapidly rising net debt/GDP ratio. The accumulated taxpayer-supported debt is on track to exceed 34% of GDP by 2027-28; when David Eby was sworn in as Premier, the debt was only 15% of GDP. The net provincial debt will have more than doubled, relative to the size of the economy, in only five years. And if the tariff war persists, the true picture will be even worse.
Regrettably, Premier Eby’s mismanagement of the province’s books in his first two years in office has left the government’s finances in a shambles, reducing our ability to respond just as the trade war begins. Even with good economic times – rather than the recession we are now likely to face – the NDP government believes it makes sense to keep adding to the province’s debt mountain at a record pace. A tendency for fiscal irresponsibility, with no concern for hardworking British Columbians who will have to pay for all of this, seems to be deeply rooted around the NDP cabinet table.
If the budget’s economic and fiscal projections lack credibility, so too does the government’s tiresome economic narrative. B.C. does not enjoy a “strong” economy, if by “strong,” one means an economy that reliably produces steady growth in output and real income measured on a per person basis, where our largest export industries are encouraged to invest and grow here, and where entrepreneurial ambition and wealth creation are championed as key drivers of prosperity. These are not priorities for the NDP.
Fundamentally, the province is grappling with stagnant productivity, waning competitiveness, sluggish business investment outside of the energy sector, very costly housing, and an ever-increasing regulatory burden that is making it harder and more expensive for companies to invest and do business here. Little of this is acknowledged, let alone meaningfully addressed, in the budget.
For the most part, this is a “more of the same” budget, focused on growing B.C.’s already expansive public sector, and earmarking more funding for key public services. We understand the importance of the latter but would have preferred to see a commitment to create a world-class business environment that attracts the private sector investment and fosters the business growth needed to pay for high quality services.
Eye on Construction
The budget forecasts a modest rise in annual housing starts beginning in 2025, following a drop last year. Specifically, housing starts are predicted to reach 46,540 this year and 47,815 in 2026, up slightly from 2024 but well below the 50,500 starts recorded in 2023. The anemic increases in housing starts are underwhelming judged against the province’s ongoing housing affordability crisis and the significant cumulative gap between housing supply and demand that has been present since 2019. The array of taxes and government funded programs designed to make housing affordable is simply not working to do the one thing that will make housing more affordable – building more homes.
Total investment in fixed capital is projected to accelerate in 2025-26, after staying roughly flat on an inflation-adjusted basis over 2023-24. However, this ignores the consequences of the U.S.-Canada tit-for-tat tariff war, which – if it persists – will weigh heavily on overall private sector capital formation in the next year and perhaps beyond.
Turning to public sector investment, the updated capital plan presented in the budget shows total capital spending climbing from $16 billion in 2024-25 to a little over $20 billion in each of the next two years. This signals a further ramping up of government-controlled capital spending in the health care, transportation, energy and education sectors. ICBA supports an aggressive public sector capital plan, but we believe it should be paired with a firm commitment to maximize the value per dollar invested for B.C. taxpayers – and this requires overhauling public sector contracting practices, including scrapping the costly and discriminatory Community Benefit Agreement (CBA) framework adopted by the NDP several years ago.
TRUMP TARIFFS AND CANADIAN RETALIATION
Any reasonable analysis of the BC Budget will reinforce how unprepared the BC Government is for the economic chaos that the Trump tariffs – and retaliatory Canadian measures – will cause for the broader economy and the construction industry. As outlined above, having tariffs at the levels rolled out today (25%) in place for any significant length of time will drive British Columbia into a recession.
The Real GDP growth rate of 1.8% in 2025 and 1.9% in 2026 and 2027, as forecast by the Finance Minister, simply will not materialize in a protracted trade war with the U.S. Our economy will shrink and shed jobs.
The first shot of that trade war was fired last night by President Trump, in a poorly-considered decision to put a blanket 25% tariff on Canadian goods entering his country.
Canada has rolled out reciprocal tariffs – a tax on $30 billion worth of American items coming into the Canadian market, with an eye to $125 billion more in three weeks.
The damage to construction is two-fold. First, the recession that will be caused by the economic fallout of the Trump tariffs will be significant and crippling for many families. The B.C. Government estimates a range of 45,000-124,000 fewer jobs by 2029, and a Real GDP loss of $43 to $69 billion by 2029. As economic conditions contract, so will the market for construction.
Then there is the direct threat of the Canadian reciprocal tariffs. This first batch of Canadian tariffs include more than $3 billion in home appliances brought into Canada from the U.S. It also includes flooring materials, some wood and wood products, nails, screws, and other metal fasteners, and certain construction tools and machinery. This will all drive up cost for builders.
The second phase of retaliatory tariffs – tentatively set for three weeks from now – will likely include steel and aluminum. These products flow across the 49th parallel constantly. Canada exports $20+ billion in steel and aluminum to the U.S. annually, but also imports $17 billion back from the Americans (shipping and supply issues mean eastern and western regions of the continent source steel differently).
And there are many other construction items on the retaliatory tariff list – which will be phased in over the next few weeks, unless President Trump abandons his destructive tariff scheme.
This will have a very negative effect on Canadian construction companies, first by plunging the country into an economic recession, and then with the cost escalation on many building products, including:
- Increased Material Costs: Lumber, plywood, engineered wood, and flooring will see price hikes, affecting framing, flooring, and interior finishes.
- Higher Fixture Prices: Windows, doors, locks, and lighting fixtures will become more expensive.
- Higher Construction Hardware Costs: Fasteners, plumbing, and electrical components will rise in price, making overall construction projects more costly.
- More Expensive HVAC & Appliances: Heating, cooling, and kitchen appliances may increase in price, impacting residential and commercial projects.
Yes, contractors are quickly looking to source materials from suppliers in Europe and Asia, but it will take time to prove out quality, logistics and pricing.
In the meantime, the upshot of all of this will be further delays in projects moving forward, margin compression, and the prospect of job losses.
These are very concerning days for British Columbia, contractors and construction workers. Watch www.icba.ca/economics and ICBA social media (Facebook and LinkedIn) for much more on the BC Budget and Trump tariffs in the coming days. We are also working on a series of webinars/interviews to help construction companies navigate the tariffs.
