A windfall in federal money is helping Quebec stay on target for eliminating its deficit next year as the Parti Québécois government struggles through a sluggish economy.
The “unexpected” increase of $280-million in federal equalization payments announced in December is giving the province the boost it needs to offset slower economic growth and a drop in revenue. Lower interest rates on debt borrowing and the use of a contingency reserve are also compensating for the shortfall in revenue.
“I am confirming that the budget will be balanced in 2013-2014 and will remain balanced thereafter,” Finance Minister Nicolas Marceau said in releasing the province’s economic update on Thursday.
The Minister played down the injection of additional federal funds.
“On a budget of $90-billion we are talking about a small amount,” he said referring to the increase in equalization payments. “If we are reaching … a balanced budget it’s because we are making significant efforts at controlling our expenditures.”
Quebec will receive $16.4-billion in federal transfers in the coming fiscal year. The increase in equalization payments stems mainly from improvements in the Ontario economy.
“This positive adjustment has resulted, among other things, from the improvement in Ontario’s economic position, which has increased its relative fiscal capacity, thereby leading to equalization gains for the other recipient provinces,” the economic update document stated.
Coalition Avenir Québec Leader François Legault said it was odd that the government needed to rely on an improving Ontario economy to help it reach a balanced budget.
“That’s nothing to be proud of. We are receiving more equalization payments because Ontario is performing better,” Mr. Legault said. “The gap between us and Ontario and the rest of Canada continues to grow … we need more private investments.”
Liberal Leader Philippe Couillard applauded the PQ for pursuing the same balanced budget objective set by the previous government. But he added that revenues were down in large part because of the government’s failure to define clear economic policies, such as determining the future financial contributions of mining companies.
“For instance the prolonged hesitation by the government on mining royalties was such that several projects were being delayed and even cancelled,” Mr. Couillard said.
The government’s economic outlook was less optimistic than what it projected in last November’s budget.
Mr. Marceau said that the last quarter of 2012 was weaker than expected. Consumers were buying less and corporate taxes were down, leaving the government with a $250-million shortfall for the 2012-2013 fiscal year that ends on March 31. Another $565-million drop in revenue for the 2013-2014 fiscal year was also expected because of slow growth.
The government was anticipating 1.3-per cent growth in 2013 and 1.8-per cent in 2014, slower than what was being projected in Ontario and the rest of Canada.
Unemployment however was expected to remain stable dropping slightly from the current 7.8 per cent to 7.4 per cent in 2014.
Meanwhile the province’s debt was said to have finally peaked at 54.2 per cent of the province’s gross domestic product. It will slowly begin to drop in the coming fiscal year to reach 48.5 per cent in 2017-2018.
The province’s gross debt totalled about $190-billion. When subtracting the government’s financial assets, the net debt as of March 31, 2013, will be about $176.5-billion.