Highlights from Quebec’s Fall Economic Financial Update

  • Quebec’s bottom line over the fiscal planning horizon is unchanged from that set out in Budget 2023. The province is projecting deficits of -$4.0 billion in FY 2023-24, -$3.0 billion in FY 2024-25, -$2.0 billion in FY 2025-26, and slightly less than -$1.0 billion in FY 2026-27.
  • Quebec has revised its real and nominal GDP projections down to reflect slower economic activity in 2024. Real GDP projections for the province were slashed in half from 1.4% to 0.7% next year while nominal GDP projections were lowered to 3.8% from 3.4%.
  • Despite a weakening economic backdrop, Quebec is still expecting to balance its budget by FY 2027-28. Before deposits into the Generations Fund, balance would be achieved two years earlier (FY 2025-26).
  • The latest deficit projection for FY 2022-23, however, is $1.1 billion deeper than the $5.0 billion projected in Budget 2023. The final estimate will be published later this year Quebec’s public accounts.
  • Higher expected revenues will offset increased expenditures over the fiscal plan, though cuts in the contingency reserve and deposits to the province’s Generations Fund were made to maintain the deficit profile. The decision to slim down the contingency reserve is surprising considering persistent economic uncertainty and the risk to expenditures posed by ongoing labour negotiations with unions representing government employees.
  • Despite the weakening economic backdrop, Quebec Finance has upgraded its revenue projections in FY 2023-24 due to increased intakes from consumption taxes, duties and permits, as well as a boost in federal transfers (+$1.8 billion in FY 2023-24) – $900 million of which is related to the Housing Accelerator Fund. These increases will be partially offset by lower revenues from taxation and government enterprises.
  • The province’s indebtedness profile is revised slightly higher from Budget 2023. The net debt-to-GDP ratio is now 38.0% in FY 2023-24, up from 37.4% previously. Upward revisions were carried forward to FY 2026-27 before settling at 35.9% in FY 2027-28 (0.1 percentage-points lower than Budget 2023). The important point is the ratio remains on a downward trajectory. The government maintains its commitment to lower its net debt-to-GDP ratio to 30% by FY 2037-38.
  • On top of the personal income tax cuts announced in Budget 2023, Finance Minister Éric Girard earmarked an indexation to 5.1% of personal income tax and social assistance benefits effective January 1, 2024. The indexation is estimated to cost the provincial government over $450 million in lost revenue in FY 2023-24 and $8.6 billion over five years to FY 2027-28.
  • The Quebec government also announced $4.3 billion over 5 years in targeted action for affordable housing ($1.8 billion), homelessness and food aid ($145 million), workforce training ($329 million), climate transition efforts ($961 million), and renewal of the investment and innovation tax credit ($1 billion). The plan is estimated to cost $1.1 billion in FY 2023-24.
  • Bottom line: Despite a deteriorating economic backdrop, Quebec’s overall fiscal picture is little changed from that painted in Budget 2023. The province still plans to balance its budget by FY 2027-28 (after deposits to the Generations Fund) and remains on track to hit its indebtedness target by 2037-38. Thanks to fiscal flexibility it gained in years prior to the pandemic and additional federal transfers, the province is able to boost investment in affordable housing, climate transition efforts and other high priority items without jeopardizing its fiscal position. Cuts to the contingency reserve, however, leave less room for unexpected shocks going forward.

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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