Quebec budget will take aim at provincial debt

ProvinCe plAns to pAy down $10 Billion over A five-yeAr spAn

QUEBEC The province plans to dip deeply into its Generations Fund to pay down $2 billion a year over the next five on its debt.

Confirming Quebec’s 2018-2019 budget will be tabled March 27 in the National Assembly, Premier Philippe Couillard and Finance Minister Carlos Leitão held a news conference to reveal a major element of the document in advance.

Overall, Quebec’s plan is to reduce the provincial debt by a total of $10 billion by 2022-2023, thus saving about $1.1 billion over that same time period in interest payments to the banks, which can then be used to fund the education and health system, Couillard and Leitão said.

“This piece of news stems directly from the sound management of our public finances and the good performance of our economy,” Couillard said. “This is a clear demonstration of our determination to build a strong Quebec, a new Quebec free of the weight of debt to the benefit of future generations.”

About $13 billion is sitting in the Generations Fund kitty.

It was created by the Liberals in 2006 to set aside money to pay the debt so it does not become the burden of future generations. As of March 31, 2017, the province’s debt was $203.5 billion or 51.9 per cent of the gross domestic product.

When the Liberals took power in 2014, the debt represented 54 per cent of GDP. Wednesday’s announcement means it will slip below 50 per cent by April.

Quebec’s stated goal is to reduce it to 45 per cent by 2025-2026. Now that goal will be met sooner, by 2022-2023.

But there are political motivations behind the decision. For one thing, as Couillard noted, Quebec can now boast it is no longer the most indebted province in Canada, and it’s future generations who will benefit the most. That’s good news on the eve of an election.

Second, the announcement is an attempt by the Liberals to pull the rug out from under the feet of the Coalition Avenir Québec, which has said in the past it would make use of money destined for the Generations Fund to reduce taxes.

On Wednesday, Couillard and Leitão ripped that idea to shreds, saying the CAQ idea would be illegal and a form of misappropriation because the law establishing the Generations Fund clearly states it can only be spent on the debt.

“(The CAQ plan) would be a catastrophe,” Couillard said. “The day a party tried to do that, Quebec’s credit rating would be instantly weakened.”

Leitão added: “In my mind, this would be a misappropriation. This fund was created to refund the debt.”

The Liberals, on the other hand, believe they can score points with voters by tackling the debt and saying they managed to do it at the same time as they reduced taxes over the last two years.

The CAQ insisted it never proposed to use money in the fund to cut taxes. What it did propose was to slow up payments to the fund and use that cash to cut taxes.

Given Quebec’s current surplus situation, $2.5 billion at the end of 2017, such a plan is no longer necessary as there is enough money to fund the only cuts the CAQ currently is proposing: school taxes.

“This idea (of taking money out of the funds) is part of a premeditated campaign of organized lies,” Legault said later at a separate news conference. “For several months now, Mr. Couillard has been repeating all sorts of fake news.”

A day earlier, Legault said the CAQ is no longer talking about a personal income tax cut because the Liberals did what it suggested in their Nov. 21 economic update.

Leitão also dropped a few hints on Wednesday about his budget. He said there will be specific measures in three areas: give more quality time to families; improve the standard of living for Quebecers; and continue to invest in health, education and public mobility.

It will be Leitão’s fifth budget as minister — his fourth balanced one — and potentially the most important one politically as it comes at the end of the Liberal term. The election is in October.

There are a few givens Leitão has already floated as he conducted a round of 2018-2019 pre-budget consultations.

Off the top, he has said individual taxpayers should not expect a large pre-election tax cut. Leitão has been saying for weeks the reductions included in last November’s economic update will suffice.

“In terms of personal taxation, we have done what we had to do back in November,” Leitão told the Montreal Gazette recently. “So in the upcoming budget, we don’t intend to go very far in that (direction).”

Where he does plan to act is in the area of taxes for small business, thus responding to an appeal by small business groups for an easing of their tax burden.

Martine Hébert, senior vicepresident of the Canadian Federation of Independent Business (CFIB), said ideally Quebec will revisit its taxation for small and medium-size businesses, especially given the recent decision by the United States to lower corporate taxes by 14 per cent.

The CFIB maintains the tax rate for businesses in Quebec remains the least competitive in Canada.

Leitão also has the bigger picture to consider. While small and medium-size businesses create the most jobs, the province is suffering from a chronic labour shortage.

“The challenge for Quebec today is not job creation, but the creation of employees,” Leitão said at one stop on his tour.

Quebec’s unemployment rate in February was 5.6 per cent and the province continues to experience employee shortages. All across the province, businesses are complaining about a lack of skilled workers. Leitão’s budget is expected to include a series of manpower training initiatives.

The other big element in the budget is expected to be a further increase in health spending — a 4.5 per cent increase is rumoured to allow for the hiring of more nurses — and in education. Money for the extension of Highway 19 in Laval is expected as well as money to extend the métro’s Blue Line.

There will also be confirmation of funding for the government’s new English-language community secretariat.

But what do voters want? Not surprisingly, polls show they want it all: increased spending on services and tax cuts.

A Léger poll conducted in February for the Institut économique de Montréal shows a majority of Quebecers (63 per cent) agree with the tax cuts already announced by Leitão. Fifty-nine per cent believe tax cuts are good for the economy while 67 per cent believe they pay too much in taxes.

The poll was conducted from Jan. 8 to 10. A total of 1,012 persons were questioned. The margin of error was plus or minus 3.1 per cent 19 times out of 20.

The challenge for Quebec today is not job creation, but the creation of employees.