• Quebec expects deeper budget deficits over the next six years and delays plan to return to a balance to 2029-2030.
  • Spending on health, education and debt servicing to ramp up notably amid new wage settlements and heftier debt burden.
  • Moderating federal transfers to weigh on provincial revenues.
  • The province’s net debt-to-GDP ratio is set to increase from 38.3% in 2023-2024 to 41% in 2025-26—the highest since the 2020 pandemic—before settling to 39.5% by 2028-29.

Budget balance cut from six-year fiscal plan

Quebec’s spending strategy laid out in Budget 2024 will keep the red ink flowing with a projected record deficit of $11 billion—suggesting its fiscal position still hasn’t recovered from the pandemic. It’s recorded deficits ever since (after accounting for deposits to the Generations Fund).

The Coalition Avenir Quebec (CAQ) government also scrapped its previous goal for fiscal balance in 2027-28, pushing it off its six-year plan. The government now vows to include plans for fiscal balance in next year’s budget and eliminate the deficit no later than 2029-30. But this doesn’t look like an easy feat. The upwardly revised $11 billion deficit (after a $2.2 billion deposit into the Generations Fund and $1.5 billion contingency reserve) in 2024-25 is nearly four times larger than the Budget 2023 projection ($3 billion).

Significantly deeper deficits are also recorded beyond 2024-25 because of a ramp-up in health and education expenses (including public sector remuneration) alongside slowing government revenues.
Debt piling up from the deeper deficits marks a departure from the series of improvements the province previously made to lighten its heavy debt burden. Quebec’s net debt-to-GDP ratio is now set to plateau around 40% over the planning horizon—rather than decline to 35.8% by 2027-28 as was previously projected. This pushes the province further from its 30% target, which was to be achieved by 2037-38.

Spending ramps up amid public sector wage settlements

Quebec made some sizable upward revisions to its spending plan in this year’s budget. The province plans to add another 4.4% ($6.6 billion) to total expenditures in the upcoming in the upcoming fiscal year—well outpacing inflation, which the budget has pegged at 2.5% in its economic assumptions.

Budget 2024 has large spending increases for healthcare (4.2%) and education (9.3%) to improve services as well as cover hefty public sector wage increases. The government agreed to boost public sector wages by 17% over five years, following contentious labour contract negotiations.

Interest on debt is also adding pressure to the provinces bottom line. Debt servicing charges are set to cross the $10 billion mark by 2026-27 and account for nearly 7% of total expenditures by the end of the fiscal planning period. Debt servicing costs will be the fourth largest expense category after health, social services, education and higher education.

Budget 2024 included little other new spending beyond the categories mentioned above. In fact, several spending categories are set to face expenditure reductions in 2024-25. Funding for educational childcare and financial assistance for families (-2.6%), employment assistance (-2.2%), and municipal affairs—including infrastructure and social housing (-4.9%)—were among the categories that will see funding decline from 2023-24.

Looking for savings

The government is turning to savings to patch up the province’s fiscal hole. The fiscal plan recuperates $2.9 billion over five years by adjusting business tax credits—including the abolishment of tax credits for retention of experienced workers and harmonising base rates of e-business and multimedia tax credits. It plans to “optimize” expenses at provincially-owned enterprises, saving an additional $1 billion each over five years.

Investing in programs to increase tax collection and continued tobacco control efforts are anticipated to save a further $400 million and $300 million respectively, over five years.

Moderating federal transfer payments to weigh on revenue

Budget 2024 expects a modest 2.4% overall increase on the revenue side of the ledger in 2024-2025. Revenue from personal income tax are projected to grow 6% and remain the province’s primary revenue source despite slowing economic growth and last year’s changes to the bottom two tax rates. This, along with steady increases to almost all other taxation sources, should support continued growth (4.7%) of own-source revenue for Quebec in 2024-25 to $121 billion.

However, an anticipated drop in federal transfers (-6.0%) will partly offset this increase. A decline in Canada Health Transfer (CHT) payments and changes to the federal equalization formula will bring Quebec’s revenue from federal sources down $2 billion to $29 billion in the upcoming fiscal year.

Revenue growth from federal transfers is expected to be muted for the rest of the fiscal plan relative to the last 10 years as well. Federal transfer payments are set to drop along with Quebec’s demographic weight in Canada amid provincial immigration restrictions, given most transfers are distributed on a per capita basis.

Quebec breaks from years of fiscal improvements

Budget 2024 marks a disappointing departure from a series of fiscal improvements made over the past decade. Plans to push out its fiscal balance also take the government further away from its target of reaching a 30% net debt-to-GDP ratio by 2037-38. The budget projects the province’s net debt-to-GDP ratio will rise in the next two years to 41% in 2025-26—the highest since the onset of the pandemic in 2020-2021.

The high interest rate environment makes it more important that Quebec controls its high debt level because debt servicing could become much heavier in the future, taking spending room away from important government missions. We hope upcoming budgets will bring a greater sense of urgency to redress the province’s fiscal position.

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