Province urged to keep spending in check in budget
Finance Minister Eric Girard should resist the temptation to be too generous in his next budget — the last before the Oct. 3 general election — and focus instead on steps aimed at boosting productivity and easing the labour shortage while he still has ammunition to do so, a new report suggests.
Although Quebec's financial picture has improved in recent months, Conference Board of Canada forecasts show economic growth in the province will slow in the next decade, crimping government revenue, the Institut du Québec think tank said Thursday in a 35-page report.
If nothing is done to curb spending by fiscal 2027-2028, budget simulations show annual deficits will start rising sharply thereafter, potentially hitting almost $10 billion by 2032-33, IDQ economists wrote.
Girard, who plans to table his 2022-23 budget next Tuesday, said last month the spending plan would contain measures to help people who are struggling to make ends meet.
In November, he revised Quebec's projected deficit for this fiscal year to $6.8 billion from $12.3 billion because of stronger-than-expected revenue. He also predicted that Quebec would return to balanced budgets by 2027-28.
“In the short term we're all right, especially when you consider that we're coming out of a huge economic shock like the pandemic,” IDQ chief executive Mia Homsy, one of the report's three co-authors, said. “The idea is not to waste this financial leeway on measures that seek to boost shortterm consumption and don't help Quebec improve its economic potential or deal with long-term issues such as the upcoming energy transition and the management of our health-care network.”
Already Canada's third most indebted province — in terms of net debt versus gross domestic product — after Newfoundland and Labrador and Ontario, Quebec must also contend with an aging and slow-growing population. That demographic handicap is poised to hamper future economic growth, while ratcheting up health-care expenses and heaping even more pressure on an overstretched hospital network.
Quebecers ages 65 and over are projected to make up 25 per cent of the population in 2032, up from 21 per cent this year, Conference Board data show. Between now and 2036, the number of people of retirement age will jump by 25 per cent.
Health-care spending is set to climb 4.8 per cent a year in the next decade, fuelling a 3.2 per cent average annual increase in program spending, according to the IDQ report. Both figures will exceed the projected three per cent average annual rise in government revenue.
“Because our population is getting older, demographics won't contribute to economic growth over the next decade,” Homsy said. “This means that GDP growth will rest solely on employment growth and productivity improvements. Unfortunately, our track record on that last front isn't very good.”
In the meantime, rising revenue should make it possible for Quebec to achieve balanced budgets — before payments to the Generations Fund — as early as 2023-24 and to stay the course until 2026-27, Homsy said. The improvement will probably be short-lived, however, with deficits possibly returning as early as 2027-28, she said.
Current economic and geopolitical risk factors only heighten the need for Girard to be cautious, Homsy said. Chief among those are higher-than-expected inflation, the war in Ukraine, and persistent supply chain bottlenecks. Inflation in February accelerated to a 30-year high of 5.7 per cent year-over-year, Statistics Canada reported Wednesday.