(Quebec) The dark clouds on the horizon force the Legault government to use the “r” word that it has been rejecting so far. It is preparing for the risk of a recession that would inflate its deficits, while paying as promised $1.6 billion to seniors to meet the rising cost of living.
This is revealed in the long-awaited economic and budgetary update from the Minister of Finance, Eric Girard, made public on Thursday.
As promised, the big government fundraiser is deploying a new component of the “anti-inflation shield” promised by Prime Minister François Legault during the election campaign. The maximum amount of the refundable tax credit for senior assistance will increase from $411 to $2,000 per year.
Nearly 400,000 additional seniors aged 70 or over will be able to claim the tax credit, for a total of just over one million seniors. The measure costs 1.6 billion per year; Quebec calculates that its aid totals eight billion in five years. He estimates that 65% of the assistance will be paid to people with incomes of less than $25,000 per year.
Taking into account the other measures announced recently, such as checks for $400 to $600, Quebec is returning five billion to taxpayers this year ($13 billion in five years). He can afford it thanks to the additional own-source revenue he has earned with the good performance of the economy at the start of the year and the rise in inflation, he pleads.
The Minister also confirms that the parameters of the tax system and social assistance programs will be indexed by 6.44% on 1er January, reflecting the rising cost of living. That’s $2.3 billion a year.
Deficit and recession
In his pre-election report for August, he predicted a deficit of 1.6 billion for the current year (much lower than that anticipated in the March budget, 6.5 billion). With its update and additional spending, the hole is now 5.2 billion (after payments to the Generations Fund which is used to reduce the debt burden). Quebec is still aiming for a return to a balanced budget in 2027-2028.
Minister Girard is showing more optimism than the private sector in his update. He predicts that the Quebec economy will run out of steam, dropping from 3.1% in 2022 to 0.7% in 2023. His ministry recognizes, however, that forecasters at the big banks have a darker view: they believe on average that growth will be almost nil, at 0.3%.
The Legault government admits that a “strong uncertainty […] hover over these predictions. He therefore gave birth to a plan B in the event of a recession, a fall in real GDP which he figures at 1% for next year: he will put 8 billion aside over five years. The Ministry of Finance estimates that a “significant decline in economic activity in Quebec in 2023” would have a negative impact of $5 billion on the province’s public finances over the same period. It also provides 2.5 billion to “stimulate the recovery of the economy”.
In 2023-2024, the additional impact of the recession scenario would be $1.9 billion, bringing the budget deficit to $4.1 billion.
“In the alternative recession scenario, households and businesses would exercise great caution and limit their consumption and investment spending. This situation would lead to a decline in employment and an increase in unemployment, ”explains the ministry.
The calculation is as follows: domestic consumption is the engine of Québec’s economic growth, and the significant increase in interest rates is hitting hard, both for citizens and for businesses.
And this is where the Legault government wants to act in the event of a recession, since it could “intervene to stimulate economic recovery by implementing targeted measures”, up to 2.5 billion.
This assistance could take the form of direct assistance to support the most affected households and economic activity sectors, and increased investment to carry out public infrastructure projects.
Both in its base scenario and in the recession scenario, we note that the government does not foresee in its documents, for the moment, that it will honor its election promise to increase economic growth by half a percentage point. compared to forecasts.
Record number of vacancies
The Ministry of Finance, however, bets on moderate growth, because it believes that “consumers have significant savings” and it predicts a significant increase in wages caused by the scarcity of labor and quotes another positive effect on consumption: the checks it sent to citizens.
As it negotiates with the hundreds of thousands of public sector employees, the Legault government points out that wages and salaries have increased by 10.8% in 2021, 10.6% in 2022, and are expected to increase by 3.5 % in 2023, due to labor shortages. In this context, these negotiations could have a significant impact on Québec’s public finances.
Especially since the challenges of labor scarcity are not going away anytime soon. From 2023, job creation will become anemic, with less than 30,000 jobs created per year due to lack of manpower. “The scarcity of labor persists due in particular to demographic aging, which limits the growth of the active population and the labor supply”.
Companies are having “difficulty hiring staff”. Quebec is facing a “record number of vacant positions”: nearly 250,000 jobs were not filled in the second quarter of 2022, an increase of 85% since 2019.
Previously, governments were obsessed with the unemployment rate, but a new indicator is now part of our reality: the job vacancy rate, which jumped from 3.6% in 2019 to 6.2% in 2022.