• Fiscal plan contains $24-billion worth of new measures over six years.
  • Government cuts personal income taxes, effective immediately.
  • Budget deficit of $4.0 billion in 2023-24 to be eliminated by 2027-28.
  • Province’s debt load projected to gradually decline.
  • New debt reduction target announced.

The pandemic crisis may be in the rear-view mirror but Quebec still has a penchant for big budgets. Quebec finance minister Éric Girard yesterday presented a six-year fiscal plan that included more than $24 billion in new measures—coming on top of the $22 billion that were added in Budget 2022 and $14 billion in the fall fiscal update. Personal income tax cuts took centre stage as the recently reelected CAQ government moves forward with its ambitious agenda to reduce Quebec’s wealth gap with Ontario.

Gradual decline in the deficit

Despite the additional measures, the budget deficit is projected to stay on a declining path. From a downwardly revised $5.0 billion in 2022-23 (after deposits to the Generations Fund), it will shrink by $1.0 billion per year until balance is achieved in 2027-28. To get there, the government will reduce its deposits into the Generations Fund from $3.4 billion in 2022-23 to $2.8 billion in 2027-28 (dipping to a low of $2.4 billion in each of the next two years).

Quebec’s debt trending lower as a share of the economy

The province’s indebtedness looks slightly heavier than it did in the fall fiscal update though it’s still heading in the right direction (down). Budget 2023 introduces a new debt reduction target (net debt-to-GDP ratio of 30% by 2037-38) to keep the focus on making further progress over the longer term. At 38.1% of GDP (in March 2022), Quebec carries the third heaviest (net) debt load among the provinces.

Investing on key priorities

After three years of focusing on the pandemic (and inflation) emergency, the CAQ government is now shifting to implementing its plan for shaping Quebec’s future. New measures in Budget 2023 target five key priorities: growing Quebec’s wealth, improving the healthcare system, supporting Quebecers, developing youth and the environment.

Reducing Quebecers’ tax burden

Growing Quebec’s wealth by far has the biggest price tag: $12.1 billion over six years, including $2.1 billion in 2023-24. The government is moving ahead with its election promise to immediately lower the first two personal income tax bracket thresholds by 1 percentage point each, leaving more money into the pockets of all 4.6 million taxpayers in the province. This alone will cost $9.2 billion in lost revenues over six years ($1.7 billion in 2023-24). Other initiatives focus on fostering the prosperity of regions (costing $1.4 million over six years), boosting productivity ($888 million) and addressing the labour shortage ($615 million).

Healthcare remains a top priority

Budget 2023 allocates $5.6 billion more in healthcare investment over six years ($1.0 billion more in 2023-24) mainly to improve the system’s efficiency and enhance support for seniors. Various initiatives to improve housing affordability, strengthen transportation networks, promote Quebec’s culture and the French language, and otherwise support families and Quebecers at large amount to $3.6 billion ($740 million in 2023-24). Education and vocational training get an added $2.3 billion ($345 million in 2023-24) to further “develop the potential of youth”. And new environmental measures (including to protect water resources and biodiversity) total $953 million ($122 million in 2023-24).

Spending more, taxing less in the coming year

Overall, Budget 2023 contains a mix of higher expenditures and lower own-source revenues that result in a higher deficit ($4.0 billion) in 2023-24 than projected in the fall fiscal update ($2.3 billion). The difference would be even wider (by $2.1 billion) were it not for the government slashing its deposits to the Generations Fund by 40% (relative to previous baseline) and slimming down the contingency reserve by $0.5 billion. These two factors in fact represent a course change for the government that will positively impact its bottom line over the medium term—keeping Quebec’s deficit on a downward track until balance is achieved in 2027-28.

Timing of tax cuts questionable

The fiscal flexibility gained in the past decade at great sacrifice has placed the CAQ government in a position to step up its efforts to grow Quebecers’ wealth without jeopardizing the longer-term financial position of the province. Quebec being a high-tax jurisdiction, there’s no doubt any tax relief will be welcome—especially at a time when high inflation took purchasing power away from many people. The risk is that the boost in take-home income could further stimulate demand for goods and services, and complicate the Bank of Canada’s job of taming inflation (potentially forced to raise interest rates more aggressively). Perhaps it would have been preferable to time any tax cuts after inflation has returned to the desired level.

Quebec’s consolidated fiscal plan
($ billions)ActualForecast     
  2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28
Consolidated Revenue 138.8 145.1 147.7 151.8 157.0 162.9 167.6
Own-source revenue 109.6 115.9 118.0 122.1 126.0 130.9 134.4
Federal transfers 29.2 29.2 29.7 29.7 30.9 32.0 33.2
Consolidated expenditure 136.0 146.8 147.9 151.4 155.4 159.7 163.2
Program expenditure 127.3 136.7 138.4 141.5 145.4 149.1 152.1
Debt service 8.6 10.1 9.5 9.9 10.0 10.5 11.1
Contingency reserve (1.5) (1.0) (1.0) (1.5) (1.5)
Surplus/(Deficit) 2.8 (1.7) (1.6) (0.6) 0.5 1.7 2.8
Deposits into the Generations Fund (3.6) (3.4) (2.4) (2.4) (2.5) (2.7) (2.8)
Budgetary balance for the purposes
of the Balanced Budget Act
(0.8) (5.0) (4.0) (3.0) (2.0) (1.0) 0.0
Budgetary balance as % of GDP(0.2)(0.9)(0.7)(0.5)(0.3)(0.2)0.0
Net debt as % of GDP38.137.437.737.537.036.535.8

Source: Ministère des Finances du Québec, RBC Economics

Robert Hogue is responsible for providing analysis and forecasts on the Canadian housing market and provincial economies. Robert holds a Master’s degree in economics from Queen’s University and a Bachelor’s degree from Université de Montréal. He joined RBC in 2008.

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