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Quebec Premier Pauline Marois responds to Nov. 20, 2012 at the legislature in Quebec City.Jacques Boissinot/The Canadian Press

The Parti Québécois unveiled its first budget Wednesday, proposing a combination of tax hikes and ambitious spending cuts aimed at eliminating Quebec's deficit by the end of the next fiscal year.

Finance Minister Nicolas Marceau tabled a fiscally conservative budget on Tuesday that steers the party away from the social-democratic agenda promised during the election campaign, with an eye on winning back support from the more right-wing nationalists who abandoned the PQ in favour of the Coalition Avenir Québec.

The effort to portray themselves as reliable fiscal stewards required juggling election promises with economic and political realities. Some promises were kept such as the freeze on daycare rates and university tuition fees. And wealthier Quebeckers will be hit with higher income taxes. Tax rates on income of more than $100,000 will be raised by 1.75 per cent as of Jan. 1, 2013 to 25.75 per cent. Combined with the federal system, the maximum personal income-tax rate for wealthier taxpayers will be 49.97 per cent, the highest in the country.

But in endeavouring to appease the business community and credit-rating agencies, the government is cutting spending in almost every area but health, education and family programs while tackling the province's burgeoning debt.

The PQ will raise more revenue by hiking taxes on so-called "non-essential" items such as beer, wine and cigarettes. And it was forced to back down on a campaign promise by increasing so-called heritage pool electricity rates, which ensured Quebec consumers the lowest rates in the country. The former Liberal government's decision to lift the freeze on these specific low-cost rates, blasted by the PQ during the election, has now been given the government's blessing, albeit at a lesser cost to consumers. As of April 1, 2013, the heritage pool rate will be indexed to the rate of inflation.

After backtracking a few weeks ago on a promise to eliminate the $200 per worker health tax, the change to the electricity rate represented yet another shift in the quest toward a balanced budget by the end of the 2013-2014 fiscal year. The balanced-budget initiative was applauded by the business community but condemned by anti-poverty groups and social activists.

"We have adopted a balanced approach," Mr. Marceau said in justifying the tax increases. "We don't want to delay balancing the budget because we know we can do it."

The Liberals didn't take kindly to being portrayed by the PQ as having allowed spending to spiral out of control to the point of jeopardizing the zero-deficit target. "The Liberal government took decisions that caused spending to skyrocket. In point of fact, it mortgaged our future away," the Finance Minister stated.

Despite the harsh words from both sides, the Liberals said they won't defeat the government. The Official Opposition said it will vote against the budget but promised not to take the PQ government down and trigger another election campaign, so soon after the last one.

"We are going to make sure that the Official Opposition expresses its voice against this budget. But we will do it in such a way as not to cause the government to fall," said Liberal interim leader Jean-Marc Fournier. Several Liberal members will be absent for the budget vote expected on Dec. 4 to make sure it passes.

The Liberals are in the middle of a race to replace former leader Jean Charest and can ill afford another election before choosing a successor on March 17, 2013. But Mr. Fournier placed the PQ on notice that a vote of no-confidence could come any time as of next spring.

With the Quebec economy growing at a moderate pace of 0.9 per cent this year and 1.5 per cent next year, revenues were lower than expected. The government said it needed to compensate for the shortfall with tough belt-tightening measures.

Mr. Marceau argued it had to make up a $1.6-billion shortfall for the current 2012-2013 fiscal year due to the lower than expected revenues and cost overruns by the previous government. About $1-billion was being recovered by imposing tight spending controls and the remaining portion through some of the newly introduced tax revenues, lower debt service and use of a contingency reserve. The deficit was projected at $1.5-billion by March 31, 2013.

In order to eliminate the deficit by March, 2014, more cuts were being introduced. Major infrastructure projects were being slashed by $1.5-billion a year for five years as of 2013-2014. Hydro-Québec was being asked to cut 2,000 jobs through attrition.

In 2013-2014, program spending will grow by a meagre 1.8 per cent and will total $63.8-billion. Quebec's debt has ballooned to $183.3-billion or 54.6 per cent of the province's gross domestic product.

Mr. Marceau partly blamed the federal government for the province's financial straitjacket, saying that Ottawa's refusal to restore social transfers to 1994-1995 levels "represents a shortfall of $800-million a year."

Spreading the pain

  • $4 - The price of a carton of 200 cigarettes will climb by $4. The measure is expected to bring in an additional $130-million in 2013-14.
  • 26 cents - A bottle of beer will cost 3 cents more, a bottle of wine 17 cents more and a bottle of spirits an extra 26 cents. The government believes it will collect an extra $100-million.
  • 1.75 - Quebeckers who earn more than $100,000 a year will see their income tax rise by 1.75 percentage points.
  • 2,000 - Hydro-Quebec will lose 2,000 jobs through attrition.

Facts and figures

  • The province is expected to post a balanced budget on revenue of $72.4-billion.
  • Capital investments will be capped at $9.5-billion a year, compared with the previously announced figure of $11-billion.
  • Companies that invest $300-million or more in specific sectors will get a 10-year “holiday” from paying tax.

The Canadian Press