Girard pledges ‘no tax increases’
Province hopes revenue growth over five years will bring budget ‘back to balance’
Quebec Finance Minister Eric Girard is ruling out tax increases to replenish government coffers — even though he says the province may need as many as five years before balancing its budget.
Girard will address COVID-19’S effects on public finances June 23, the minister said Friday in a discussion hosted by the Chamber of Commerce of Metropolitan Montreal. Health Minister Danielle Mccann told lawmakers this month that the province was planning to spend about $2.5 billion on the pandemic until the end of June.
“There will be no tax increases in Quebec,” Girard said. “It’s not part of our philosophy as a government. We have no intention of raising the provincial tax, of raising personal income taxes, of raising corporate taxes. This is not how we will get back to balance.”
Instead, Quebec will bank on revenue growth that “slightly exceeds spending increases,” Girard said without being more specific. “This is the game plan.”
Girard tabled his 2020-21 budget on March 10, days before Premier François Legault put the economy on pause. At the time, Quebec had racked up billions of dollars in surpluses — the result of three straight years of economic growth. Girard fully expected the trend to continue, predicting two-per-cent growth this year.
A day after Girard issued his budget, World Health Organization director-general Tedros Adhanom Ghebreyesus declared COVID-19 a pandemic.
The eight-week shutdown affected 40 per cent of Quebec’s economic output, and will probably result in a deficit of $12 billion to $15 billion this fiscal year, the finance minister said Friday. Gross domestic product will shrink by four to six per cent, he said.
“Our best estimate is minus five per cent” GDP growth, Girard said. “It will depend on the rebound, if there is a remedy, if there is a second wave.”
Quebec has emerged as a COVID-19 hot spot, registering a majority of the infection cases recorded in Canada.
As Girard sees it, the health crisis has highlighted Quebec’s three biggest vulnerabilities: an aging population, relatively low productivity and a heavy debt burden.
Future deficits mean that “we are going to need to make long-term efforts to get back on the road to budget balance,” Girard said. “This road will take three to five years.”
Additional productivity gains are crucial if Quebec hopes to be able to pay for services such as health care, education and infrastructure in the coming years, Girard said. They would help boost
Quebec’s long-term GDP growth target to two per cent a year from 1.3 per cent, he said.
Every month of the shutdown costs Quebec about three per cent of GDP, or about $5 billion in lost government revenue, Girard said.
Quebec is planning to ramp up government spending this fiscal year to make up for a drop in private-sector investments, Girard said. Infrastructure spending will climb to $14 billion from a planned $11 billion, he said.
COVID-19 heralds “a very difficult period in public finances. All governments are stimulating the economy, offering emergency help, which means that they must all borrow at the same time much more important amounts than forecast.”
Debt service — the interest that Quebec pays on its debt — is the government’s third biggest expense item after health care and education. Quebec’s indebtedness — the province had gross debt of about $198 billion as of the end of March — means the province cannot afford to post deficits for very long, Girard said.
“It’s necessary to have sizable deficits now to help our companies and our people, but we must return to balance with a credible plan because we cannot presume that interest rates will forever be low,” he said.