Highlights:

  • The Quebec government maintained its Budget 2024 projection for a large $11 billion budget deficit in 2024-25, but slightly increased its projected shortfall for 2025-26 to $9.2 billion from $8.5 billion.
  • The fall economic statement contains $4.3 billion in total new spending over three years, falling short of $2.3 billion in rising revenue over the same period.
  • The upward revision to program spending this year largely reflects wage adjustments following mass public sector strikes at the end of 2023, a funding boost to support infrastructure projects and rising refundable tax credit costs.
  • Bottom line: Quebec’s 2024 economic update looks uneventful on the surface, but more is happening underneath with larger federal transfers and half of the contingency reserve fund being used to support new spending.

Quebec’s 2024 fall economic update presented no changes to the province’s bottom line this fiscal year, despite a notable upgrade to the 2024 outlook. Higher portfolio expenditures than previously expected more than offset the revenue boost from higher federal transfers. However, a cut to the contingency fund and higher taxation from the harmonization of the new federal capital gains inclusion rate leave the government’s budget deficit projection at $11 billion.

As in Budget 2024, the five-year fiscal plan remains in deficit through the final 2028-29 year. The fall update reiterated the government’s commitment to keep the deficit on a downward track over the fiscal plan to achieve balance by fiscal 2029-30.

Larger federal transfers account for most of revenue boost

The government made upward adjustments to its growth outlook, which should have resulted in stronger province-generated revenue projections compared to Budget 2024. Yet, most of the uptick in revenue is coming from federal sources.

Federal transfers have been upwardly adjusted in a big way ($1.6 billion this year)—reflecting special funding the province received to foot the costs of welcoming a surge in asylum seekers. The federal government’s changes to the capital gains inclusion rate also support higher revenue from income taxation since Quebec has chosen to harmonize with the federal policy—adding $972 million to revenue in 2024-25.

The government slightly downgraded its growth assumption for 2025, in part to reflect a dimmer demographic outlook. The updated real and nominal gross domestic product forecast at 1.5% and 3.6%, respectively, may prove overly optimistic depending on how recently announced immigration cuts play out in the economy. This highlights some downside risks to government revenue.

Fewer new spending measures announced

The fiscal update didn’t include as many big new spending announcements as in prior years. The $2.1 billion in new spending initiatives since March (excluding portfolio expenditure increases) will be spread over five years and is only a fraction of the massive $13 billion that was announced in last year’s update (which included the indexation of personal income tax at a price tag of $8.7 billion).

New expenditures announced focus on transit ($1.2 billion), natural disaster response ($433 million), forestry industry support ($252 million), and housing and social assistance ($218 million). The increase outpaces stronger expected revenue even with relatively limited new spending.

Existing portfolio expenditures are tracking higher as well. Total new spending is projected to be $2.7 billion higher this fiscal year from Budget 2024 and nearly $1.1 billion higher in 2025-26.

Health and social services expenditures ($898 million)—reflecting wage adjustments after hundreds of thousands of public services workers went on strike at the end of 2023—account for the bulk of the upward adjustment to expenditures.

Additional funds for infrastructure projects ($786 million) and rising costs of refundable tax credits ($201 million) were other items weighing more heavily on expenditures.

The Quebec government is halving its contingency reserve fund to $750 million to bridge the gap between revenue and expense increases, and still maintain its $11 billion deficit projection this year.

Slight improvement to province’s debt burden

Quebec has reported stronger-than-expected growth over the last two years, which improved its financial picture. As a result, debt metrics measuring against the size of the economy look slightly better and offer an improved starting point. However, the debt burden will still follow a deteriorating trajectory in the short term.

The province’s net debt-to-GDP ratio will now rise from 38% in March 2024 to 39% in March 2025. It’s set to peak 39.8% in March 2026 before gradually easing to 38.6% by the end of the fiscal plan in 2029. That’s a marginal improvement from the 40.3% previously expected this fiscal year and 41% peak it was expected to reach in 2025-26.

The large increase in the deficit and rising debt profile outlined in Budget 2024 was disappointing. Even more so was the absence of a roadmap to return to balance—and Thursday’s update didn’t do much to alter that impression.

Quebec remains among the most indebted provinces, which gives it less fiscal flexibility than others to respond to unexpected shocks. Much will be riding on Budget 2025 when the province has promised to lay out a detailed plan to balance its books by the 2029-30 deadline it committed to.

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.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.