As expected, Québec’s Minister of Finance, Éric Girard, presented earlier today the province’s economic update on the state of public finances.
General Overview
The economic update presented today highlights measures aimed at reducing the growing budget deficit, reflecting a clear priority on controlling public finances.
Among the adjustments announced, a reduction in the career extension tax credit aims to limit fiscal expenses, even if this impacts older workers wishing to extend their professional activity and their employers. This update occurs amid increased financial pressures, with every measure focused on cost control and the long-term sustainability of Québec's public finances.
Some improvement in growth projections is noted, but difficulties in curbing spending remain. Québec’s economy is expected to grow by 1.2% in 2024 and 1.5% in 2025. According to the Finance Minister, this improvement is attributed to a reduction in inflation, anticipated lower interest rates, and consequently, reduced debt interest payments.
This year’s economic update introduces few new measures and focuses mainly on containing spending within an uncertain financial context.
Québec’s Economy in Numbers
Current year budget deficit: $11 billion, or 1.8% of GDP.
Debt-to-GDP ratio forecasted at 39% as of March 31, 2025.
Economic growth forecast: 1.5% in 2025.
Projected revenue for the current fiscal year: $152.6 billion.
Projected expenses for the current fiscal year: $160.6 billion.
Planned transfer to the Generations Fund: $2.2 billion.
Balanced budget target maintained for 2029-2030.
Improved purchasing power compared to Ontario.
$750 million withdrawn from the contingency reserve to reduce the deficit.
Key Measures
Impact on Older Workers
The Québec government announced restrictions on the career extension tax credit, affecting older workers. This measure, initially designed to encourage individuals aged 60 and over to remain in the workforce, has seen its maximum amount reduced by $1,000. For workers aged 65 and over, the credit is reduced from $1,650 to $650, while for those aged 60 to 64, it decreases from $1,500 to $500. This reduction aims to ease the government’s fiscal burden but raises concerns about its impact on experienced workers relying on this financial support to extend their careers.
Support for the Forestry Sector
$252 million allocated for wood processing and reforestation efforts.
Support for Québecers
$184 million over four years to accelerate the construction of new housing.
Increased income supplements for social assistance recipients.
Community Development
$1.2 billion over five years for public transit corporations.
Community Safety
$433 million for rebuilding infrastructure damaged by floods and installing 18 new cellular sites in remote regions.
Tax Measures
Personal Income Taxes
Maintenance of the planned indexing of tax brackets.
Revision of the career extension tax credit, now reserved for workers aged 65 and over.
Tax Harmonization
Alignment of capital gains taxation with the federal system.
Preliminary Analysis
The economic update presented by Finance Minister Éric Girard highlights a deterioration in Québec’s financial situation, transitioning from one of the best-managed provinces in the federation a few years ago to one of the most vulnerable today. This shift reflects a combination of external economic factors and internal budgetary decisions weighing heavily on the province’s fiscal health.
An Unstable International Context
Pressure on Québec’s industries is likely to intensify with a new U.S. administration coming in 2025, which could alter trade and fiscal policies south of the border. Moreover, the budget update gives little consideration to international uncertainties that could further disrupt Québec’s economy, particularly in strategic sectors like exports and energy. This update uses these factors to justify the deterioration in public finances without offering substantive solutions.
Hydro-Québec Revenues Under Pressure
The economic update also fails to consider recent projections of declining revenues from Hydro-Québec, due to global energy market conditions and operational challenges. This omission is concerning given the central role Hydro-Québec’s dividends play in Québec’s public finances.
An Uncertain outcome
Despite the efforts made, this budgetary exercise may prove partially futile, particularly due to anticipated economic shifts in the U.S. and declining revenues from state-owned enterprises. These factors, combined with spending management that does not appear aligned with a genuine intent to overhaul public finances, weaken medium-term recovery prospects.
Structural and Inherited Challenges
The current government seems to struggle to refocus on its primary missions (healthcare, education, reducing the tax burden), exacerbating the impacts of increased spending during and after the pandemic. Commitments to supporting sectors such as health, housing, and infrastructure continue to generate significant budgetary pressures. These choices, though necessary in the short term, risk compromising efforts to achieve a balanced budget by 2029-2030.
Comentários