Québec Economic Update
As expected, the Québec government's Finance Minister, Éric Girard, presented his economic update on the state of Québec's public finances on November 7, 2023.
Today's economic update confirms the stagnation of Québec's economic situation. After years of strong growth, the Québec economy is expected to expand by just 0.6% in 2023. For 2024, the growth forecast is cut in half compared to the one estimated last March, and stands at 0.7%. According to the Minister of Finance, the main reasons for this slowdown are inflation and persistently high interest rates, as well as the ongoing wars in Ukraine and Israel.
The Québec economy in figures
Government spending reached $150.3 billion;
Revenues are estimated at $149.1 billion;
The projected deficit for 2023-2024 is estimated at $4 billion, after payment to the Generations Fund, the province's investment fund;
Unemployment is expected to reach 4.3% in 2023, and 4.5% in 2024;
The vacancy rate is 4.5%, the highest in Canada;
The contingency margin is used to reduce the accounting deficit.
Despite the tense economic situation, the government is implementing targeted measures in certain priority sectors, representing investments of $4 billion. Although some of these sums have already been announced, the new spending is somewhat risky.
In the area of housing, $1.8 billion is earmarked over five years to build 8,000 new social and affordable housing units and help lower-income households find housing. This will enable the construction of 8,000 housing units, including 500 for people experiencing homelessness. A further $145 million is earmarked to combat homelessness and improve food aid, while $961 million is earmarked to support the climate transition and communities. Finally, $995 million has been earmarked to promote business investment and increase economic potential.
It should be noted that the budget does not include any new direct financial assistance for citizens. Instead, to provide support in the face of inflation, the Québec government is counting on a 5.08% indexation of tax assistance, including social assistance, the solidarity tax credit, support for seniors and the family allowance. Tax tables will also be indexed. This measure represents an estimated investment of $2 billion. Despite the economic slowdown and additional spending, Québec reiterates its intention to return to a balanced budget for fiscal 2027-2028. Québec's economic update does not include any tax increases for individuals or corporations.
Finance Minister Éric Girard's overall message is clear: the party is over. The time for budget tightening is back, and the government has almost no budgetary leeway left to deal with the unexpected. The Québec government's financial situation is worse than the most cautious forecasts for early 2023, and there is no indication of a sudden upturn.
As such, and after some pandemic years, growth in government spending has slowed considerably, to 2%. Without going so far as to speak of a recession, the Finance Minister agreed that Québec's budgetary situation was tight, and that the next six months would be very difficult for Quebecers, many of whom will have to undergo mortgage renewals at much higher rates. This should have a downward impact on their spending, and by extension, on government tax revenues.
The brake on government spending is necessary, while the deficit is widening and the debt increasing. For a government that had to go through COVID-19 and was very generous in the run-up to the 2022 election, the pendulum is swinging back sharply. It will be interesting to see how this government's spending reflex combines with the reality of revenue shortfalls and disproportionate spending growth.
Despite increasing federal transfers, particularly for housing, Québec is running out of money. Add current negotiations with the public service, and it's safe to assume that the next budget will probably contain even more restrictions.
As a result, there will be opportunities in Québec for companies and initiatives to cut costs and propose economic development projects. Québec is not yet in a budget crisis, but the current situation calls for special monitoring.
Specific measures that might interest you
A total of $1.8 billion over five years has been announced:
$1.6 billion to build 7,500 housing units for low- and moderate-income households under the Québec Affordable Housing Program;
$225.2 million to build 500 units reserved for people experiencing homelessness, under the Québec Affordable Housing Program;
Funding for these units is made possible through a joint effort by the federal and Quebec governments, thanks to an agreement in principle reached on October 13, 2023 to accelerate housing construction;
Renewal of the investment and innovation tax credit
A total of $1 billion has been announced to create a more favourable tax environment for business investment, by renewing the Investment and Innovation Tax Credit (C3i) and simplifying the investment tax assistance system.
The renewed C3i will support the acquisition of manufacturing and processing equipment, computer hardware and management software packages, for eligible expenditures of up to $100 million over four years.
With the tax vacation for major investment projects and the renewed C3i, the government is introducing a simplified system of tax assistance for investment. This new system will apply to the two pillars of the government's investment support strategy: productivity gains arising from the acquisition of new technologies; and the implementation of major investment projects, for their structuring effects.
Indexation of domestic rates for Hydro-Québec, the monopoly electricity producer and distributor in Québec, is maintained at 3%.