A margin of manoeuvre used to try to alleviate consequences of inflation
Background
On March 22, 2022, Finance Minister Éric Girard presented the 2022-2023 Quebec Budget. This is the last such exercise before the next Quebec general election is called, scheduled for October 3. In addition to the electoral deadline, this budget is anchored in two major realities: on the one hand, the reopening of the Quebec economy due to the gradual lifting of most sanitary measures. On the other hand, the price of several raw materials and the cost of living in general have skyrocketed as a result of the Russian invasion of Ukraine and the resulting sanctions.
Financial data
- GDP grew by 6.3% in 2021;
- Government spending for 2022-2023 is estimated at $136.6 billion ;
- Revenues are projected at $138.5 billion;
- The projected deficit for 2022-2023 is $6.5 billion after a $3.4 billion payment to the Generations Fund, which is the province's investment fund;
- A balanced budget is still projected for the 2027-2028 fiscal year.
Economic Forecast
Quebec is forecasting economic growth of 2.7% in 2022 and 2% in 2023. Quebec's structural deficit is lower than projected in the fall, at $2.8 billion. The wealth gap between Quebec and Ontario is narrowing from 16.4% to 13.6%. The government plans to reduce this gap to 10% by 2026, before eliminating it completely in 2036.
Over the past three years, Quebec's situation has improved in relation to the Canadian average and its main economic partners in the federation, including Ontario.
Overall presentation
The budget presented today is faithful to the major priorities already stated in the last economic update, namely health, education and the economy. It is also the Quebec government's official response to the significant increase in the cost of living observed in recent months.
Fighting inflation
Today's budget is the Quebec government's official response to the significant increase in inflation, which now stands at 4.5% in Quebec. The key measure is a one-time financial assistance of $500 for citizens earning less than $100,000 annually. This measure should affect up to 6.4 million Quebecers. It is a tax credit applicable on the 2021 tax return. In effect, this will increase the disposable income of more than 90% of adults.
In the area of housing, $633.3 million over five years has been set aside to promote access to quality, affordable housing, notably by helping low-income households pay their rent and by preserving existing housing.
Economy
The government is providing $2.2 billion over five years to increase the productivity of the Quebec economy, notably by deploying the Quebec Research and Innovation Strategy ($1.5 billion), by continuing the digital shift of businesses ($451 million over five years) and by stimulating investment in new technologies, entrepreneurship and exports ($224 million).
290 million has been earmarked for the integration of immigrants into the workforce, including increased support for learning French ($198 million), promoting the Attraction des personnes immigrantes en région ($80 million) and accelerating the processing of immigration applications ($12 million).
A sum of $1.5 billion over five years is also allocated to foster regional economic development. Within this amount, investments are planned to support regional air transportation, the growth of the bio-food sector, the development of the forestry sector and the revival of the tourism sector.
Health care system
This includes $5.2 billion over five years, primarily to fund Minister Christian Dubé's upcoming health system renewal plan ($1 billion), improve management and delivery ($3.4 billion) and modernize the health system ($789 million). There is also $3.7 billion over five years to enhance public care and services. These investments are mainly divided between strengthening care and services for seniors and caregivers ($2.6 billion), and improving the accessibility and quality of health and social services ($546 million).
Early childhood, education and higher education
A total of $2.8 billion over five years is provided in this sector, primarily to support student success and retention initiatives ($1.6 billion) and to improve access to higher education ($1.2 billion).
Taxes
The budget presented by Québec does not include any tax increase for individuals or corporations. The tax rate also remains unchanged, including the payroll tax rate.
Also, no increase in taxes or fees related to the sale of alcohol and tobacco is planned, including the price of liquor permits.
Other measures
- Roulez Vert: the maximum rebates for the program are reduced to $7,000 for a new electric vehicle and $5,000 for a new plug-in hybrid vehicle;
- An additional $1 billion is added to the budget to fight climate change. The total budget now reaches $7.6 billion, of which $5.8 billion is for GHG reduction.
Preliminary Analysis
Despite the shifting global context, Quebec remains in better fiscal shape than most other provinces in the country. Today's budget contains relatively few surprises: it focuses on the three pillars identified by the government since it took office, namely education, health and the economy.
In keeping with what was expressed by the Prime Minister and his Minister of Finance in the days leading up to the budget, this budget, while not austerity, is on balance more conservative that what was expected, especially in an election year, which is usually a time for more generous investments.
To compensate for the rise in inflation, the government chose to propose a broad, almost universal measure, rather than segmenting its support to certain clienteles. For an election budget, this is still a courageous measure, while many groups representing special interests were calling for more specific investments and for no-end-in-sight spending.
While the Quebec government once again confirms the return to a balanced budget in 2027-2028, it still fails to detail the specific means that will be taken to achieve this objective, probably preferring to postpone this discussion until after the next fall elections. However, he is committed to not cutting services in the core missions of the state, which is made possible by a more aggressive post-COVID-19 recovery than expected.
The measures announced to counter the rising cost of living appear interesting and should help prevent a slowdown in consumption in the short term. In the long term, however, it should be remembered that the increase in citizens' disposable income can, on the contrary, fuel inflation. More structural measures, such as tax cuts, could also be considered in future years.
The budget remains relatively timid in the fight against the labour shortage, which continues to affect many businesses. This is one of the main criticisms that can be made. We would have liked to see additional investments in immigration, training and recognition of foreign credentials.
Thank you for your attention and we look forward to continuing to discuss this budget, which we are sure will be the subject of much discussion.
Please note that in case of disparity with the official documents of the Quebec government, the latter take precedence.
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