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Hydro Quebec power lines are shown Thursday Oct. 29, 2009 in Levis Que.. Hydro-Quebec's move to take over most of the assets belonging to New Brunswick's public power company in a proposed $5-billion deal was announced in Fredericton. (Jacques Boissinot/The Canadian Press)

Hydro Quebec power lines are shown Thursday Oct. 29, 2009 in Levis Que.. Hydro-Quebec's move to take over most of the assets belonging to New Brunswick's public power company in a proposed $5-billion deal was announced in Fredericton.

(Jacques Boissinot/The Canadian Press)

FINANCE

Decision to close nuclear plant expected to cost Quebec $1.3-billion Add to ...

Quebec’s budget deficit could balloon to $2.8-billion this year as a result of the government’s decision to close the province’s only nuclear plant instead of refurbishing it.

Hydro-Quebec will be forced to take an estimated $1.7-billion charge when the Gentilly-2 plant shuts down at the end of December. This charge covers the write-down of the nuclear plant, the cost of decommissioning it and the money the state-owned electricity producer had already spent on upgrading the facility.

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As a result, Hydro-Quebec’s annual profits, which hover around the $2-billion mark, will be reduced to close to nothing.

Since Hydro-Quebec sends out 75 per cent of its profits each year to the government as dividends, Quebec will lose close to $1.3-billion in revenue. This amount will be added to the province’s debt.

Excluding this one-time accounting charge, Finance Minister Nicolas Marceau maintains the province will hit its target of a $1.5-billion operations deficit for the 2012-2013 fiscal year. He said the task will be even more daunting, given that Quebec’s growth is slower than expected and that expenses are significantly higher than previously estimated due to the “lax control” of the previous Liberal government.

Mr. Marceau pegged the spending overruns at $1.1-billion this year, about $300-million more than what his predecessor, Raymond Bachand, had forecast. He also reported a $500-million revenue shortfall. This means that the government will need to find an extra $1.6-billion by the end of the year to keep its word.

“There was bad news when we opened the books,” the minister said during a news conference in Montreal. “Things were not as nice as I would have thought. But we are not escaping our responsibilities. We will work even harder.”

These cost overruns are not unusual, responded Liberal public spending critic Sam Hamad in Quebec City. “Each year you get unexpected costs and you just cut elsewhere,” he said.

The president of the Treasury Board, Stéphane Bédard, sent out word to all ministries to exercise very tight control over expenses for the remainder of the fiscal year, which ends March 31. The growth in spending is capped at 2 per cent this year.

To compensate for the anticipated shortfall, Mr. Marceau hinted that he will use Quebec’s $300-million contingency fund. He is considering intensifying the province’s fight against tax evasion. The interest costs on the province’s debt, which are lower than initially forecast, will also help.

Despite this challenging context, Mr. Marceau maintains that he wants to cancel the tuition-fee hike as well as scrap the health tax, a $200-per-adult flat tax that is controversial because of its regressive character.

However, the Finance Minister stopped short of unveiling how he intends to make up for the more than $1-billion shortfall those decisions will entail. Specifically, if he will go ahead with retroactive tax hikes for the highest income earners, as well as retroactive changes to taxes imposed on capital gains and dividends. Stay tuned next Wednesday, the minister said.

Yves-Thomas Dorval, president of the Conseil du Patronat du Québec, the lobbying group for the province’s big businesses, doesn’t doubt Mr. Marceau’s revolve to tackle the deficit. “But I am concerned about the way he is going to accomplish this,” he said. “I hope he doesn’t just look at increasing the government’s revenues to cover the shortfall.”

Follow on Twitter: @S_Cousineau

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