Quebec plots borrowing spree in face of weak growth

Higher budget deficits on the way, CAQ says

Quebec expects to have higher budget deficits for years to come as the economy slows and wages rise for public sector employees.

Finance Minister Eric Girard delayed his target to balance the books by two years, to the fiscal year that ends in 2030, in budget documents released Thursday. It’s a change of fortune for a government that one year ago announced income-tax cuts and said budget shortfalls would rapidly shrink to almost nothing.

This time, Quebec’s fiscal forecast paints a darker picture. The government sees a deficit of $11 billion for the fiscal year that begins on April 1, $8 billion higher than it expected only four months ago. It’s the third large province to release a budget in recent weeks, and in every case there has been a notable deterioration in government finances.

To pay for it, Quebec will need to tap the bond market aggressively. The government’s projected financing needs for the coming year are $36.5 billion, a 70 per cent increase from the current year. The figure includes money needed to repay maturing debt.

This is the sixth budget for Girard, a former treasurer of National Bank of Canada, who was re-elected in 2022 as part of a landslide win for Premier François Legault and the Coalition Avenir Québec party, which has since lost ground to the separatist Parti Québécois in opinion polls. Legault’s nationalist government has sought to attract more investment, notably in the electric-vehicle supply chain, and to reduce the wealth gap with Ontario.

“It is a challenging and responsible budget in a difficult economic context,” Girard said. He announced measures to generate billions in revenue and savings over the next five years — reducing tax breaks for tech firms, hiking taxes on tobacco and conducting a major review of government expenses. “The return to a balance will necessitate real gestures, but it’s feasible.”

PUBLIC SALARIES RISE

The province, while blessed with an unemployment rate that’s below the national average, is expected to grow just 0.6 per cent this year and 1.6 per cent in 2025, according to government forecasts.

It has also been hurt by dry weather. Hydro-québec, which exports electricity to the U.S., has been grappling with lower water levels in reservoirs, leading to a $1.5-billion shortfall in revenue.

At the end of last year, agreements were reached with 600,000 public workers, including teachers, that led to wage increases of 17.4 per cent over five years. The new contracts, and others still being negotiated, will add more than $3 billion annually to costs, according to government estimates.

Over the next three fiscal years, deficits are expected to total more than $23 billion, up about $18 billion from projections in November. The figures include contingency reserves and billions in contributions to the Generations Fund, a reserve fund that’s dedicated to future debt payments and managed by the Caisse de dépôt et placement du Québec. The figures could change, of course, if economic growth comes in faster than the government’s longterm forecast.

Girard said the government must boost the average annual revenue growth from 3.3 per cent to 4.4 per cent, while maintaining spending growth at 2.9 per cent, to reach a balanced budget.

The new deficits show “there is no plan to the return to a balanced budget,” said Frédéric Beauchemin from the opposition Liberal Party who used to be a banker at Bank of Nova Scotia. “The CAQ’S strategy is to wait for the Bank of Canada to lower rates. It’s a government that’s losing control.”