Eat your heart out, Alberta and Ontario.
Okay, that wasn’t really what Finance Minister Éric Girard said in tabling his newly elected Coalition Avenir Québec government’s first fiscal update on Monday. But it might as well have been. While his counterparts – Vic Fedeli in Ontario and Joe Ceci in Alberta – face fiscal gloom, with unwieldly structural deficits neither knows how to tame, every day seems like Christmas for Mr. Girard.
No Quebec finance minister in living memory has inherited a rosier budgetary situation than the former National Bank of Canada treasurer recruited by Premier François Legault to run in October’s election. The previous Liberal government cleaned up the books, but it’s Mr. Girard who gets to reap the windfall.
And what a windfall it is. The bounty in Monday’s fiscal update surpassed expectations, with projections for a $4.5-billion surplus for the 2018-19 fiscal year. Even after depositing $2.85-billion in the Generations Fund, an investment account aimed at reducing the province’s net debt, Mr. Girard will have $1.65-billion left over.
That sum, combined with recent surpluses banked under the Liberals, will bring the government’s stabilization fund to almost $9-billion by March 31, helping budget-proof Quebec against any economic downtown. Ontario and Alberta should be envious.
To top it off, Mr. Girard will withdraw $10-billion from the Generations Fund this year and next to directly pay down debt. As a result, the province’s gross debt-to-gross domestic product ratio will fall to 45 per cent by the end of the 2019-20 fiscal year, fully five years ahead of the target date set by the former Liberal government.
Quebec’s net debt-to-GDP ratio, meanwhile, will fall below 40 per cent next year. Based on current projections, Ontario’s net debt-to-GDP ratio will exceed Quebec’s by 2020. That is stunning turnaround from just a decade ago when Quebec’s net indebtedness ratio was 16 percentage points higher than Ontario’s.
While both provinces saw their debt levels climb during the most recent recession, Quebec made balancing the budget a priority in 2014 and has not looked back since. That has won it kudos for fiscal management from credit rating agencies.
“Having institutionalized the practice of setting aside funds for debt reduction and [tabling an] outlook for a series of budget surpluses, debt ratios are expected to continue to fall steadily,” DBRS Ltd. said in a report last week. “Further improvement in the credit profile could have positive rating implications over the medium term.”
At single-A (high), DBRS currently ranks Quebec a notch below Ontario, at double-A (low). But that could soon change. After Ontario’s Progressive Conservative government tabled a fiscal update projecting a $14.5-billion deficit this year, but offering no timeline for a return to a balanced budget, the credit agency hinted a downgrade could be in the offing.
“The outlook for the credit profile is now uncertain,” DBRS said. “The new PC government has yet to provide a detailed plan or clearly explain how it will achieve its fiscal policy objectives or [provide] a time frame for balancing the budget.”
DBRS downgraded Alberta to double-A a year ago and has maintained a negative outlook on the rating since. “The [New Democratic Party]-led government has yet to demonstrate meaningful action to address its fiscal imbalances and the province continues to erode its low debt advantage,” DBRS said.
Of course, Quebec still benefits enormously from federal equalization payments – $11.7-billion this year alone, accounting for more than 10 per cent of provincial government revenues – while Ontario will pocket about $1-billion in equalization and Alberta will get nothing.
Equalization payments, however, are based on past economic performance. Decades of slower growth in Quebec resulted in a wealth gap with Alberta, and to a lesser extent with Ontario, that it will take years to close. But the trend is positive for Quebec, despite a labour shortage that the CAQ government could exacerbate by temporarily cutting immigration levels.
A report released this week by the Desjardins credit union giant suggests Quebec’s economy has undergone a transformation in recent decades, successfully moving away from a dependence on light manufacturing and into skills-oriented sectors.
“Quebec can count on competitive businesses in sectors that are in harmony with current and future needs in the global economy, whether it be in consulting engineering, information technology, transportation equipment or multimedia,” the Desjardins report said. “The synergistic links that these businesses have between themselves and with their suppliers have created a solid, resilient and innovative industrial fabric, making Quebec better equipped to withstand the economic storms to come.”
All of this may just make Mr. Girard the luckiest finance minister in Canada.