A balanced Quebec budget has opened the door to reducing the burden on Canada's most heavily taxed province, but Quebeckers will have to wait a while yet to put any extra money in their pockets.
Finance Minister Carlos Leitao announced Thursday that Quebec will break even for the first time since the 2008 economic crisis, thanks to spending discipline and an economic recovery that has boosted government coffers more than expected.
"This is a turning point, not an end point," Mr. Leitao said as he unveiled his budget. "And we've done it without raising taxes."
The province had to find $1.2-billion in spending cuts to reach balance, building on nearly $6-billion in savings announced in the previous nine months, which included a hiring freeze, boosting daycare costs, cutting fertility programs for women and eliminating dozens of government structures. The fresh cuts come in a host of programs and will limit overall program spending growth to 1.2 per cent, compared with 4.4 per cent growth in revenue.
Spending in Quebec will just crack $100-billion for the first time. The province is forecasting economic growth to rise to 2 per cent in 2015, up from 1.5 per cent last year, matching the national average on the strength of exports to the United States with its improving economy.
Mr. Leitao announced modest tax relief, but most of it will start to take effect only in 2017 and be phased in over years. He's also pledging a major overhaul of the Quebec tax system to shift the burden toward consumption taxes and fees and away from income taxes, but that too will wait for a wider discussion in the province.
"It's the 2017 budget, not the 2015 budget," said François Legault, Leader of the Coalition Avenir Québec party. "They're telling Quebeckers to come back in two years after they've paid more property taxes, more school taxes, more daycare fees."
Quebec will limit spending growth on health and social services to 1.4 per cent and education spending will be nearly frozen, with 0.2 per cent growth. The increases are a fraction of the 4 per cent for health and 3.5 per cent for education the Liberals promised less than a year ago when they won election. Critics lined up at microphones and protested outside the Quebec City budget site to hammer the Liberals over austerity.
"We are far from balance when they cut drastically in public services to reach a 'zero' target," said Parti Québécois finance critic Nicolas Marceau.
"It's easy, very easy, to present a budget with zero as the bottom line when they don't care about the consequences."
The budget would reduce staffing in the civil service by 2 per cent in 2015-16. The government has offered a five-year contract with a 3-per-cent raise over the term to most unionized public service workers and appears determined to stick to its guns.
"This is a real bosses' budget," said Jacques Létourneau, the head of the CSN union that represents 170,000 workers in health and education. "There will be major cuts in health and education to keep spending this low, and we're not ruling out anything in how we will respond."
On the tax side, the province will in 2016 start phasing out its health tax, which ranges from $100 to $1,000 per year, depending on income. Eliminating the tax was a key election promise in the 2014 campaign but it won't be fully implemented until after the next election. "There will be other budgets before then," Mr. Leitao said, in an apparent hint he might accelerate the elimination if conditions allow.
The province will introduce a modest "tax shield" refundable credit in 2016 to reward Quebeckers who enjoy an increase in income. For example, a parent who gets a raise of $5,000 to $45,000 would recover $570 that would normally go to taxes.
Quebec will also lower corporate taxes from 11.9 per cent this year to 11.5 per cent by 2020. Small and medium businesses pay a reduced amount and manufacturing businesses in primary industries such as fishing and forestry will see their tax rate drop in half to 4 per cent in 2017.
In all, the tax relief for individual taxpayers adds up to $2-billion through 2020 and $500-million for corporations. Quebec will remain by far the most heavily taxed province as a percentage of its economy.
The sinking Canadian dollar is helping make Canadian exports attractive to the U.S. market. The slide in oil prices will save Quebeckers $1.4-billion this year, allowing them to spend elsewhere in the economy.
The reduced fiscal capacity of oil-producing provinces combined with Quebec's growth is expected to slow growth in the equalization payments the province receives from Ottawa. They'll still grow from $9.5-billion this year to $10.4-billion by 2020. Even if low prices extend over a number of years they will still be a "net positive" for Quebec, Mr. Leitao said.
The province has posted relatively modest deficits for most of the past 15 years, peaking in 2009-10 at $3.2-billion. But provincial finances are choked for the long-term by Quebec's heavy debt load, economic growth that perennially lags the national average, Canada's most rapidly aging population and a shrinking work force. "We have an enormous demographic challenge," Mr. Leitao said. He said the government intends to revamp how Quebec selects immigrants to put greater emphasis on employability.
Quebec's gross debt of $206-billion will reach a peak of 54.9 per cent of gross domestic product as of March 31. The proportion is expected to decline to 54.0 per cent in a year. "It's still high, but we've started a period of reduction," Mr. Leitao said.