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Analysis | 11 billion deficit in Quebec, a smokescreen? | Quebec Budget 2024

Natasha Kumar By Natasha Kumar Mar14,2024

Analysis | 11 billion deficit in Quebec, a smokescreen? | Quebec Budget 2024

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In his budget, Quebec Finance Minister Eric Girard added a line: gap to be resolved.

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No one expected such a high deficit in Quebec. At $11 billion, never in history has a government presented such a high level of deficit in absolute terms. Relative to the size of the economy, this is far from the largest deficit, at 1.9% of GDP. But is this shock deficit intended to darken the current portrait as much as possible in order to convince the population of the need for a major clean-up of the public system?

The reality, as Prime Minister Legault said at a press briefing on Wednesday noon, is that the deficit linked to state activities is $8.8 billion. This is the deficit before payment to the Generations Fund, which is 2.2 billion.

The Legault government also chose to include a contingency provision of $1.5 billion in its calculation. This is very prudent, but dropping this financial provision, the real deficit is 7.3 billion. Already, the budget balance seems smaller.

The Minister of Finance, Eric Girard, says that the government will be faced with a structural deficit of $4 billion starting in 2026. Once again, before payment to the Generations Fund, the deficit, starting in 2026- 2027, is between 1 and 2 billion. And if we exclude the provision for contingencies, we are in a balanced budget.

However, the government is adding a line in the budget that economists and credit agencies generally don't like very much: gap to be closed. We could call this line “shoveling forward”. In 2025-2026, $800 million must be found. The following year, it’s 1.5 billion. And the gap to be closed will be 2 billion in 2028-2029.

Quebec Budget 2024

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Quebec Budget 2024

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I hope you are still following! The Quebec budget, for a number of years, has been less and less easy to understand. The budget balance in Quebec is no longer simply the difference between income and expenses. Added to this is the Generations Fund, which ensures that a government with a balanced budget legally finds itself in a deficit because it must inject money into the Fund.

There is also a provision for contingencies and, today, a gap to be absorbed, not to mention all the other little hiding places that the Ministry of Finance likes by exaggerating certain expenditures which are not going to be carried out or by moving the cursor of the GDP forecast, even if only by a tenth of a point, which allows hundreds of millions of dollars to be added or subtracted from the financial framework.

Let's add that the $11 billion deficit is equivalent to 1.9% of GDP. Before payment to the Generations Fund, at 8.8 billion, it is 1.5% of GDP.

Relative to the size of the economy, Quebec experienced several budgets that were significantly more in deficit in the 1970s, 1980s and 1990s. In 1980-1981, for example, the deficit was $3.5 billion, or 4.7 percent of GDP. Today, a deficit of 4.7% of GDP would exceed 27 billion, according to economist Pierre Fortin.

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Having said all that, Quebec is undoubtedly facing structural challenges that are already putting pressure on its public finances. In his budget on Tuesday, Minister Girard recalled that in 1971, the rate of the number of people aged 75 and over was 2.3%. In 2022, we were at 9.1%. And in 2041 we will be at 15.8%. This aging of the population has major consequences on public finances.

With the urgent needs in education, in public transport, on the climate issue, not to mention, of course, the mammoth budget of the health and social services system, the State is clearly under pressure. Additional structural expenses will be added in the future. It is far from clear that revenues will be there to allow the government to balance the budget, especially if we lower taxes as Minister Girard has chosen to do.

Furthermore, with the low investments announced in innovation and productivity, as well as in regional economic development, particularly in mobility between regions, the government of Quebec is not contributing sufficiently to putting in place the conditions that will make it possible to improve basically the potential for GDP growth, which would result in additional tax revenue for the state.

I met the CEO of the Quebec Chamber of Commerce and Industry, Steeve Lavoie, at the National Assembly on budget day. He told me that the main current issue for the economy of the National Capital is uncertainty over mobility projects. Approximately $2 billion in investments are pending on the Quebec City tramway project and cannot move forward until a decision is made on this project.

The structural challenges are real, as is the structural deficit. But could it be that announcing a surprise deficit totaling $11 billion after provisions and payments hides another objective: that of cutting the state apparatus?

Premier Legault said at a press briefing that the objective of the spending review which will begin in the coming weeks is to reduce bureaucracy without affecting services to the population. But what does that mean exactly?

François Legault spoke of 15,000 people retiring annually from public administration. We could therefore proceed by attrition, he clarified, a way of doing things that is generally more accepted.

Does this mean that the work of these people is currently of no use, since there is no need to replace them? Does this mean that we will ask the remaining workers to do more? The public discussion that will begin on this subject will not be discreet and harmonious. The unions will clearly go up to the barricades and the Legault government will seek, as it often does, to have public opinion on its side.

For achieve this objective, that of winning the support of the population, the government has an interest in drawing up a dark and worrying budgetary picture. At $11 billion, a deficit larger than that of the 2020-2021 pandemic year, we frankly couldn't do better. It hits hard!

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Natasha Kumar

By Natasha Kumar

Natasha Kumar has been a reporter on the news desk since 2018. Before that she wrote about young adolescence and family dynamics for Styles and was the legal affairs correspondent for the Metro desk. Before joining The Times Hub, Natasha Kumar worked as a staff writer at the Village Voice and a freelancer for Newsday, The Wall Street Journal, GQ and Mirabella. To get in touch, contact me through my 1-800-268-7116

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