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Quebec's Finance Minister Raymond Bachand tables the provincial budget at the National Assembly on March 20, 2012. (MATHIEU BELANGER/Mathieu Belanger/Reuters)
Quebec's Finance Minister Raymond Bachand tables the provincial budget at the National Assembly on March 20, 2012. (MATHIEU BELANGER/Mathieu Belanger/Reuters)

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Quebec really does count its chickens before they hatch Add to ...

These are stories Report on Business is following Wednesday, March 21, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Counting chickens Raymond Bachand is winning high marks from economists on yesterday's budget, but here's a comment that threatens to come back and haunt Quebec's finance minister: "If the hen is there, the eggs are going to be laid tomorrow."

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Mr. Bachand was referring yesterday to the government's projections of huge growth in the mining sector, and royalties along with it. The province projects royalties will climb to $415-million in the 2016-2017 fiscal year, from the average $42-million over the last few. Indeed, Mr. Bachand expects $4-billion in royalties over the next decade.

I thought Greece had taught us not to count our chickens before they're hatched, and, in fact, Mr. Bachand gave a nod to this, saying that "in finance we usually don't count our eggs before they're hatched." In Quebec's case, if you've got the hens, the chicks will follow.

Quebec is counting on revenue from current mining projects and those in the pipeline, and also plans to negotiate taking actual stakes in some.

All in all, economists believe Quebec is in an enviable fiscal position, with plans for a deficit of just $1.5-billion in the next fiscal year and a balanced budget a year later.

Quebec actually has the highest debt-to-GDP ratio among the provinces, but Mr. Bachand's budget is deemed as sensible and credible.

With some help from Ottawa's more than $2-billion to harmonize taxes, Quebec was able to boost its contingency reserves and delay further austerity moves.

"Of particular note, Quebec is following the federal government’s lead and moving to build up a prudential liquidity buffer to help insulate the province in the event of extreme financial market turbulence," said Warren Lovely of CIBC World Markets.

"The $6-billion of prudential liquidity, equivalent to roughly one-third of the future annual financing needs, will add to the government’s borrowing needs in the coming two years but have no impact on overall provincial indebtedness. Proceeds will be deposited into the province’s existing sinking fund and will be held in ultra liquid assets (i.e., federal T-Bills) which could be sold in the event of a major market disturbance to provide needed cash should Québec’s access to short- or long-term markets be compromised."

This comes as Quebec is expected to be a laggard among the provinces in terms of economic performance, and a jobless rate expected to climb back to the 8-per-cent range next year.

"Any sense that Quebec’s economy would sail through after emerging from the 2008-2009 recession ahead of most provinces faded last year," said economists Paul Ferley, Robert Hogue and Kirsten Cornelson of Royal Bank of Canada.

"There were disappointing developments in the labour market and other sectors of the economy in the closing months of 2011 in Quebec that dimmed the prospect for a bounce back in growth in 2012 from a lacklustre pace in 2011," they said in a report today.

"We expect the provincial economy to continue to trail other provinces in terms of growth this year with a rate of 1.6 per cent, which is unchanged from 2011. This would constitute the weakest back-to-back performance outside a recession since 1995-1996. We project only a slight acceleration to 1.9 per cent in 2013."

And as National Bank Financial's Stéfane Marion put it, it's no time for complacency.

"In our view, the plan to reduce the ratio of debt to GDP over the period from 2013 to 2017 is essential for a return to lasting soundness in public finances and for a fairer deal among the generations," he said in a report.

"This amounts to the next megaproject for the Quebec government. With debt amounting to 55.3 per cent of GDP this year, it will have to keep a tight rein on spending at a time when economic uncertainty is likely to remain high. Given that nominal GDP growth is projected at not quite 4 per cent over the budgeting horizon, it is interesting to see that even after elimination of the deficit, the government intends to hold consolidated spending growth (excluding debt service) to 3 per cent. Additional manoeuvring room may be necessary depending on what the upcoming federal budget has in store."

General Mills cites input costs General Mills Inc. posted higher sales in its third quarter, but was pressured by commodity costs rising at the fastest pace in three decades.

The maker of Cheerios and Cinnamon Toast Crunch posted a dip in profit to $391.5-million (U.S.) or 58 cents a share, diluted, from $392.1-million or 59 cents a year earlier. Sales climbed to $4.1-billion from $3.7-billion, pushed up by its acquisition of Yoplait.

"Our third-quarter results reflect strong worldwide sales growth for our business, but the 10-per-cent to 11-per-cent input cost inflation we’re experiencing this year pressured our margins," said chief executive officer Ken Powell.

"Fiscal 2012 has represented a challenging operating environment, with the highest level of commodity inflation that we’ve seen in 30 years," he added in a statement. "But sales of our leading food brands remain strong in markets around the world, putting General Mills on pace to achieve record-level net sales and adjusted diluted earnings per share."

The company projects adjusted earnings per share at $2.53 to $2.55 this year.

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