Quebec has reduced its deficit while increasing spending and keeping tax rates flat thanks to a strong economic performance during the pandemic, a windfall its government is using to send taxpayers direct cash payments in an election-year budget.
Finance Minister Eric Girard tabled a fiscal plan on Tuesday that he said was aimed at cushioning a rising cost of living and fixing problems exposed by the pandemic. The roadmap was released at a time of low unemployment and robust growth in Quebec, but serious uncertainty in the global economy, amid Russia’s invasion of Ukraine, inflation and a simmering pandemic.
“The economy and the fiscal situation are going well,” Mr. Girard said in a press conference. “That gives us a margin for manoeuvring to intervene when needed.”
Quebec’s economy boomed last year thanks in part to generous government aid and a well-timed loosening of public-health restrictions. A Bank of Nova Scotia report last fall called it the “Miracle on Saint-Laurent Street.” The province’s unemployment rate of 4.5 per cent in February was the lowest in Canada.
That has filled government coffers with $7.2-billion in increased corporate and income tax revenues. The gross debt burden of 43.1 per cent is now in line with its prepandemic level despite a temporary spike over the past two years.
“The government is right to be optimistic for many reasons,” said Pierre Fortin, emeritus professor of economics at the University of Quebec at Montreal. Not only has Quebec’s economy recovered faster than other provinces, but its strong performance is also in line with a decades-long trend of outperforming its neighbour Ontario.
“What people don’t realize is this isn’t only a short-term development.”
Storm clouds remain because of world events, however. Despite outpacing the rest of Canada in GDP growth last year, at 6.3 per cent compared with a national average of 4.6 per cent, Quebec is projected to grow more slowly than the rest of the country this year and next. The Ministry of Finance forecasts that higher oil prices driven by the war in Ukraine will hurt the province’s economic performance, since Quebec is a net importer of oil.
The chance of a recession in the coming year stands at one in four, Mr. Girard told journalists on Monday.
That uncertainty, coupled with higher-than-expected inflation (now projected at 4.7 per cent this year, up from a projected 2.9 per cent in the fall economic update), has prompted the government to spend freely. Every adult earning $100,000 or less will receive a one-time payment of $500 after filing their income taxes, costing the government $3.2-billion and covering an expected 6.4 million people. That is on top of aid payments to lower-income Quebeckers earlier this year.
The government is also earmarking $1.7-billion to combat a potential resurgence of COVID-19 this year, including a possible booster shot campaign and the purchase of more than 50 million rapid tests.
Although Quebec’s economy has rebounded well from COVID-19, the crisis has also exposed serious gaps in the province’s labour supply and health care sector, which the government has committed to filling with new spending. Limited hospital capacity, driven by a lack of nurses, forced the province to lock down severely this winter during the Omicron-driven fifth wave of the pandemic.
“The pandemic has weakened the health care system and strained its personnel,” the budget says flatly.
Over the next five years, the government will spend $3.4-billion to retain and improve work conditions for health care workers, while fulfilling expensive collective agreements signed with their unions during the pandemic. The money will pay for more administrative staff and better prehospital care, as well as more flexible scheduling.
Quebec’s economywide labour shortage is one of the country’s worst and could stall future growth, according to a February report by the Institut du Québec think tank.
After announcing $2.9-billion over five years in the fall economic update for work force training and recruitment, spending on higher education will grow by 13 per cent in 2022-23, the biggest increase in the major budget categories. The government plans to spend more than $600-million over five years to raise the number of higher-education graduates by helping them move between regions, supporting remote schooling options, and leasing property to increase the number of spots in classrooms.
With a deficit of $6.5-billion this year, including deposits into a debt-repayment fund, the government says it is still on track to balance the budget by 2027-28, but declined to accelerate its path to fiscal balance despite economic good fortune.
Opposition parties accused the government of short-term thinking driven by the provincial vote in October.
“What we have today is a purely electoralist budget with no vision,” said Liberal finance critic Carlos Leitao, who called for a more aggressive approach to reducing housing prices.
Manon Massé, co-spokesperson of the left-wing Québec Solidaire, said it was wrong for households making $200,000 to receive the same cost-of-living payments as needier Quebeckers, and called for more spending on the environment.
For his part, Mr. Girard denied that the election was a factor in the decision to send out the $500 payments.
“There have been electoralist budgets in the past, in Quebec and at the federal level, and we think they’re counterproductive,” he said. “Voters see what’s happening.”
Premier François Legault’s Coalition Avenir Québec government continues to enjoy a substantial lead in the polls and is expected to be re-elected amidst a divided and weakened opposition.
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