Quebec pre-election budget contains massive boost in government spending

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• The provincial budget projects balance for 2018-19 on $108.7-billion in spending, ending three years of surplus.
• The Quebec spending plan includes no new major personal tax cuts.
• Economic growth of 3 per cent – the highest in 20 years – helps fuel a spending increase of 5.2 per cent.
• The province’s debt as a percentage of GDP will drop to 49.6 per cent in 2018, 1.9 percentage points lower than 2017.
• The government is planning to collect sales tax from consumers on Netflix and other foreign online services and is projecting revenue of $154-million over the next five years. Legislation is expected this spring.

Quebec has introduced a balanced budget with a massive boost in spending six months before Quebeckers vote in a provincial election, but the Liberal plan includes one unusual pre-election twist: No new major personal tax cuts.

Finance Minister Carlos Leitao’s budget will increase government spending by 5.2 per cent, the largest hike in a decade, far outstripping the healthy 3 per cent growth in the provincial economy. The budget contains a long shopping list of measures designed to quiet critics who spent the first half of Premier Philippe Couillard’s mandate accusing him of enacting draconian restraint on spending that, they say, was particularly harmful to the sick, the elderly and children.

This budget promises to hire 3,100 teachers and support staff in the next year with a 5 per cent increase in education spending to encourage parents and students to forget the near-freeze they protested two years ago. Mr. Leitao pledged to put the bulk of a 4.6 per cent increase in health spending directly into hospitals in the hope of blunting criticism that recent health money has mostly gone into doctors’ pockets.

Read more: What you need to know about the Quebec budget

Targeted tax cuts and subsidies were sprinkled among small business and dozens of cultural and community groups.

Mr. Leitao reminded voters the Liberals came to office four years ago promising to get the province’s financial house in order and spur economic growth. After four years of strong growth, reduced unemployment and balanced or surplus budgets, “I’m proud to say we delivered our promise,” Mr. Leitao said.

Still, Mr. Leitao said, clouds are on the distant horizon. Quebec’s debt is shrinking in relation to its hot economy but remains second only to Newfoundland in its size-per-citizen. Free trade with the United States has an uncertain future with President Donald Trump. Interest rates may rise and the province may be near the top of the business cycle.

“Our level of indebtedness is still very high, one of the highest in Canada. We simply have to maintain balanced public finances,” he said. “Besides, if you can’t balance the budget at the top of the business cycle, when will you balance it?”

The last time Quebec increased spending by more than 5 per cent was in the 2008-09 budget during the last recession but, Mr. Leitao predicted, the next recession is not “any time soon.”

While the budget ends three consecutive years of surpluses, it also removes any room to manoeuvre for the opposition parties that will contest the next election. The conservative Coalition Avenir Québec, which has led in recent opinion polling, would be forced to make spending cuts if it is to deliver on its aim to shrink government and return money to the pockets of Quebeckers.

Coalition party leader François Legault blasted the government for failing to reduce the wealth gap between Quebec and most of the rest of Canada. Equalization payments from Ottawa will continue to rise to $13.1-billion in 2019-20, an increase of 5.9 per cent this budget year and 12.1 per cent next year. “We’ve never been more economically and fiscally dependent on the rest of Canada,” Mr. Legault said. “It’s embarrassing.”

Mr. Legault did applaud the Liberals for boosting funding to the health and education systems. “This stop-and-go method of funding services isn’t great for managing them, but at least the money is there,” he said.

“But what they’ve also done for four years is taken money out of the wallets of Quebeckers. There’s nothing in the budget to put money back in the wallets of families.”

Nicolas Marceau, the finance critic of the Official Opposition Parti Québécois, argued the government is hiding an actual deficit by using an accounting trick allowed under Quebec’s balanced budget law to use $1.5-billion of previous years’ surplus to even out this year’s budget.

“Today is the distribution of candy after three years of cuts and Oct. 2 will be the return to austerity. This is the Liberal cycle. It’s disappointing and cynical, but it’s the Liberal way,” said Mr. Marceau. “We will plunge back into austerity the day after the election.”

It’s fine to return funds to health and education, but spending cuts and freezes in previous years translate “into services our children did not receive and won’t receive,” he said. “They amputated services for years. They take people for idiots.”

While the budget contained little in new tax cuts for individuals, Mr. Leitao emphasized that Quebec families will have a lower tax bill thanks to measures already announced.

Mr. Leitao was asked if he is saving an individual tax cut for the election campaign along the lines of two major tax cuts he announced in 2017: “That would be pandering for votes. We won’t do it,” he said. “Besides, in this era it doesn’t work.”

Even without a juicy tax cut, the minister may have still hit his target audiences. An index page of the budget includes six pages of small economic-development measures, from climate-change education to subsidizing small distillers. Harsh critics among the business, union and lobby-group leaders in the budget room were scarce.

Véronique Proulx, CEO of the Manufacturers and Exporters of Quebec, applauded measures to reduce the tax bill by $1.2-billion for small and medium-sized businesses but was disappointed big business did not get similar measures. “It has an impact, slowing the growth of investment,” Ms. Proulx said, adding uncertainty about the future of free trade with the U.S. isn’t helping. “Workers in major manufacturers are more vulnerable to foreign political whims.”

Mr. Leitao added figures to his oft-stated determination to collect sales tax on online services like Netflix. He says he will collect $7-million next year, ramping up to $45-million by 2023. He says he is counting on co-operation from the opposition parties to pass a law this spring.

He was less clear on what mechanisms he would use to collect from the foreign companies, but he said they would be required to register under the provincial sales-tax regime and remit money they collect from customers.