REPORT: How BC’s Credit Rating Impacts the Taxpayer

(Image courtesy of CBC)

A couple weeks ago, BC's credit rating was downgraded by Standard and Poor’s (S&P), one of the leading American credit agencies, from AA- to A+. Now, on its face, this move may seem like high-level finance jargon, but this costs BC taxpayers $78.59 million a year. To understand this, however, one must grasp how BC does its budget and how bonds play a role in it.

The Relationship Between Government Budgets and Bonds

Governments, like most organizations, have budgets. Budgets, whether for a household, a business, or a government, dictate how an entity allocates its resources to achieve a certain goal or objective. For a household, it can be saving money for a family trip; for a business, it can be meeting profit benchmarks; and for a government, it can be ensuring its citizens are prosperous. At least, that’s the idea. 

Now, the BC government is currently spending more than it is receiving in taxation, incurring a deficit. Since the government is spending money that it doesn’t have, it has to borrow money. One of the ways the BC government borrows money is by issuing bonds. 

Bonds are a great way for governments to get money without having to raise taxes. After all, no politician wants to defend raising taxes in a general election campaign. Say a government wants to build a bridge. They could raise taxes, which could be contentious, or issue bonds, and bonds may be the most attractive option. However, some bonds are riskier than others, and that can impact the entity issuing the bond in a great way. The way bonds are rated are as follows.

Adam and Brad, the Case of Two Bonds

Imagine you have two friends, Adam and Brad. 

Adam is reliable, has a good job, always pays his share when you go out to eat, and overall, is a good person. So when Adam asks for $100, you have no problem giving it to him as you know you’ll get it back. If Adam were a bond, he would be rated as “AAA.” As such, with bonds, investors who purchase them want interest. After all, how would they make money? So, since this bond, Adam in this case, is highly rated, investors would accept low interest payments as they are pretty confident Adam will pay off the principal of $100. 

Now, we take a look at Brad. Brad is aloof, constantly switching careers, always asks you to help out with his portion of the bill, and is just an unreliable guy. So, when Brad asks you for $100, you are hesitant to give it to him since you are very uncertain about getting your money back. If Brad were a bond, he would be rated somewhere around “B” and be named what bond traders would call a “junk bond.” Junk bonds are considered very high-risk as it’s not a guarantee you’ll get your investment back, so investors want higher interest payments than from “AAA” bonds. In other words, they want to be compensated for the risk they are taking.

If there is one thing to take away, it is that if a bond has a low rating, the higher its interest rate and payment will be. If a bond has a high rating, the lower its interest rate and payment will be. 

When you apply the example of Adam and Brad to government bonds, that’s where the issue of bond ratings start to matter to your average citizen. 

The Costs of Governmental Dereliction

The BC government, for the longest time, had an “AAA” bond rating. BC got this rating by being fiscally responsible, and if they ran deficits, they were modest enough that the government had a plan to pay it back. This meant that it got to issue bonds at favourable rates for the government and, in turn, BC taxpayers. In June 2018, the BC government was issuing bonds at a lower interest rate than Ontario by 13 basis points or 0.13%. 

But over the last few years, the BC government has been very generous with its spending and thus had downgrades in its bond rating. This has allowed investors to charge higher interest rates on the province compared to its peers. In April 2025, as a result of fiscal mismanagement done by the BC government in the last seven years, BC is now issuing bonds at a rate higher than Ontario by 2.5 basis points or 0.025%. The difference between these two numbers, from -13 basis points to +2.5 basis points, is 15.5 basis points or 0.155%.

(The credit ratings of the top five provinces. BC is the only one with a negative outlook as given by S&P and Moody’s.)

Now, on its face, a difference of 0.155% doesn’t seem like a lot. But, when the BC government is issuing billions of dollars in bonds and running very high deficits, which they have to issue more bonds to cover, it can create massive problems. 

The Bill You Are Going to Pay

Over the next two years, the BC government expects to renew or issue $50.7 billion in debt to meet its financial obligations. This number includes $14.3 billion Moody’s projects BC will have as a deficit in the 2025/2026 fiscal year, $10.2 billion the BC government expects to have as a deficit in 2026/2027, $8.23 billion of debt maturing in 2026 that the government has to renew, and $6.35 billion of debt maturing in 2027 that the government also has to renew. 

Assuming the debt issued to cover the $50.7 billion are provincial bonds, the premium BC taxpayers will be paying over their Ontario counterparts is $78.59 million/year. We got this number by multiplying $50.7 billion by the 0.155% difference we discussed earlier. To put it simply, BC taxpayers are paying an extra $78.59 million/year to pay off investors as a result of the financial carelessness done by the provincial government. 

What You Are Giving Up

With an extra $78.59 million/year to spend to help the public, BC could see many improvements. More modern recreational facilities or pump stations to help the city of Victoria. More money fostering BC’s fledging biomedical industry, which could lead to breathtaking innovations for health. Perhaps more funding for police so people feel safe when they walk around downtown Vancouver, more support services for troubled indigenous youth, another wing at YVR so people can see their faraway relatives in an expanded, breathable space. The possibilities are endless.

Neglecting Not Only Harms the Present

Many British Columbians want investments from their provincial government and want that government to care about them and, more importantly, care about the future of their children and loved ones. While fiscal responsibility isn’t as sexy as a sweeping power to deal with a trade war or restricting cell phone use in classrooms, failing to adhere to basic governmental budgeting can harm not just the current BC government but also future governments to come.