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A report by Quebec’s interim Auditor-General, Michel Samson, says, ‘According to our estimates, the 2012-2013 annual deficit is underestimated by $626-million.’Jacques Boissinot/The Canadian Press

The Parti Québécois government is underestimating the deficit and will need to further cut services to meet "ambitious" spending targets, according to a report by the provincial auditor.

"According to our estimates, the 2012-2013 annual deficit is underestimated by $626-million," the report, released on Wednesday, stated. Interim provincial Auditor-General Michel Samson also questioned the government's debt figures. "As for the net debt and accumulated deficits, they are underestimated by $8.1-billion." The government had estimated that as of March 31, 2013, the net debt was $175.4-billion.

The audit was released just as Finance Minister Nicolas Marceau was preparing to table a provincial budget on Thursday that is expected to set the stage for an election this spring. The auditor, who was mandated by opposition parties to examine the figures in the minority government's financial update released this past November, mentioned on several occasions the "risk" involved in the PQ's projections and the lack of "prudence" in defining them.

The provincial auditor's criticism fuelled opposition attacks against the government. Liberals and Coalition Avenir Québec party leaders said the PQ has lost all credibility in its ability to deliver an accurate economic assessment of the province.

"We certainly have doubts as to the level of credibility of tomorrow's budget given that there will likely be no spending estimates … We will certainly have time to talk about all of this during the election campaign," said Liberal Leader Philippe Couillard.

CAQ Leader François Legault said the report shows that the government failed to include $1-billion in recently announced expenditures for the coming fiscal year. "This shows that Quebec's public finances are heading toward a wall. A major shift is needed to give taxpayers a break," Mr. Legault said.

According to the auditor's report, the PQ government had to rescind its promise to reach a balanced budget during the current fiscal year because it overestimated the province's economic growth. Unlike the federal government, Quebec failed "to take into consideration an economic prudence margin" in its forecasts to offset potential forecasting errors.

Lower-than-expected revenues will lead to a $2.5-billion deficit this year and $1.75-billion deficit in 2014-2015, according to the November update. The PQ now promises to achieve a balanced budget by the end of the 2015-2016 fiscal year.

Mr. Samson said he was given insufficient time to prepare a more detailed analysis of November's economic update presented by the PQ minority government. He also complained of the lack of co-operation by the Ministry of Finance, saying that the "late receipt of documentation" as well as "restricted access to people, systems and data" made it impossible to properly evaluate the government figures.

Despite these problems, the provincial auditor concluded that the overall government economic perspectives were "reasonable." But it also found that spending estimates were "ambitiously" low.

This means cutbacks in services, especially in big-budget areas such as health and education, will likely be needed if the government – which has promised no new taxes – hopes to achieve the zero-deficit target within the next two years. The shortfalls would have to be offset "through an increase in service fees or an additional decrease in expenditures."

The auditor also said the government failed to consider how potential cutbacks would affect economic growth over all. "These cuts could slow down economic activity," the auditor wrote.

The auditor concluded that the information available "does not make it possible to assess the scope of actions that will have to be taken to reduce growth of overall expenditures. Government departments and budget-funded bodies will have to make considerable efforts to respect the desired growth objectives."

Mr. Marceau didn't share the auditor's outlook. The minister argued that the government's tighter spending targets are realistic and will be met to balance the budget in two years.

"I have always said that controlling spending in the current context is something that will require a lot will and effort."

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