• Québec’s budgetary shortfall will deepen to a record $13.6 billion in 2025-26 following a marginally shallower deficit in 2024-25 ($10.4 billion).
  • The plan to balance hinges on improving Québec’s revenue base and securing additional federal transfers, but still has gaps.
  • The province boosts its contingency reserve fund and announces $5.4 billion in support of innovation and economic revitalization over five years, in part, to hedge against trade-related shocks.
  • A public expenditure review identifies $3 billion in savings by 2029-30, supporting a reduction in inflation-adjusted expenditures over the planning period.
  • Province loosens longer-term debt reduction targets as indebtedness shifts to a higher track.

Québec’s 2025 Budget focuses on stimulating wealth creation and fostering innovation—top priorities for both the short and longer terms that have been heightened by the current trade turbulence. Unlike the Coalition Avenir Quebec government’s prior budgets, this edition opted for more targeted supports— particularly for businesses, healthcare, and education.

Despite the narrower focus, Québec’s deficit is expected to grow to $13.6 billion in 2025-26—the largest in its history (in nominal terms). This larger shortfall primarily reflects increased allocations to the contingency reserve fund and postponement of the capital gains inclusion rate changes to January 1, 2026—something the federal government recently abandoned entirely.

The larger deficit follows a slightly smaller shortfall of $10.4 billion in 2024-25. Stronger-than-expected economic activity boosted revenues beyond initial projections, leaving the contingency reserve fund unused.

As promised—and as required by provincial law—Budget 2025 provides a plan to return to balance by 2029-30. Achieving this goal hinges in large part on securing higher federal transfers and improving Québec’s revenue base by enhancing economic potential. These conditions may prove difficult in the current macroeconomic climate. And yet, this plan is still incomplete with a $2.5 billion gap persisting by the terminal year.

Revenue growth tempered by economic conditions

Revenue growth is expected to be weak in 2025-26, increasing by just 0.7%. Trade disruptions are expected to dampen export activity and overall economic momentum. Québec’s baseline economic assumptions are in line with ours and assume imposed U.S. tariffs will be in place for roughly 2 years and average 10%.

A downside scenario assuming 25% across-the-board tariffs is provided for indicative purposes. It results in a contraction of 0.1% in GDP in 2025 and deeper deficit of $14.8 billion in 2025-26. This outcome, however, remains contained due to the $2 billion contingency reserve fund the province is setting aside for the year.

Targeted spending measures for businesses, healthcare and education

Budget 2025 demonstrates a greater effort to control expenditures. Total expenditures are set to rise $2.5 billion (1.5%) in 2025-26, representing a small decrease after adjusting for inflation. Still, at $166 billion, expenditures remain well ahead of projected revenues, contributing to the large budgetary deficit.

New spending measures focus on stimulating wealth creation, strengthening healthcare, and enhancing education, with associated costs of $5.4 billion, $3.9 billion, and $1.1 billion, respectively, over five years. This includes $4.1 billion in transitional assistance for businesses affected by U.S. tariffs.

The government also plans to enhance the Québec Infrastructure Plan (QIP) by $11 billion (7%), raising total infrastructure investment to $164 billion over ten years. These funds will target improvements in healthcare, education, and transportation.

Budget 2025 contains a hefty $12.3 billion in additional measures over five years. But with the public expenditure review launched last year identifying $3 billion in savings by 2029-30, the net hit on the budget’s bottom line over the fiscal planning period is expected to be to $9.3 billion.

Ongoing tensions over public sector wage demands pose a significant risk to the expenditure forecast, as future settlements could exceed current projections. Further delays or cancellation of the capital gains inclusion rate changes add another layer of uncertainty to the fiscal outlook.

Indebtedness picture dims

Budget 2025 shows some deterioration in the province’s indebtedness position over most of the fiscal plan. That’s despite stronger-than-expected growth in 2024 which brightened the near-term picture. Québec’s debt burden is now expected to rise to 38.7% in 2025-26 and continue climbing to 41.9% in 2027-28. This level comes just shy of the 43.1% reported during the pandemic when stimulus packages and weak economic growth drove up the ratio.

Québec’s relatively high debt burden remains a vulnerability as it limits the province’s fiscal flexibility to respond to unexpected shocks, including ongoing U.S. trade tensions.

It’s deteriorating financial picture may also raises scrutiny among credit rating agencies which raised red flags over last year’s budget. A credit rating downgrade would make debt servicing more costly for Québec—a line item that is already projected to eat up nearly $10 billion in spending in 2025-26.

Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis Group, providing analysis for the provincial macroeconomic outlook and budget commentaries.

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