Quebec Finance Minister Eric Girard will present his first budget on Tuesday since the adoption of a new law which allows him to postpone by a maximum of three years the moment when the government will stop running deficits.
The office of the Minister of Finance confirmed this week to Duty that the new version of the Balanced Budget Act will result in the presentation of a new plan to return to balanced budgets. “This law repealed the old one,” was the response. “According to the new law, due to the deficit presented in the 2022-2023 public accounts tabled on December 11, the government has until the 2025-2026 budget to table this plan. »
As the law sets the duration of plans to return to budget balance to a maximum of five years, the government could decide to extend its deadline until the 2030-2031 financial year, depending on when it presents it and number of years it takes.
At the end of January, at the end of a caucus of his deputies in Sherbrooke, Prime Minister François Legault had not ruled out postponing the current objective of restoring budgetary balance during the 2027-2028 financial year. “It is too early to answer this question,” he replied at a press conference. “We are in the process of doing all the analyses. I have meetings that took place with Eric Girard, I have others planned in the coming weeks. I ask you to be patient for a few months, we will tell you everything in the budget. »
Three hours earlier, Mr. Girard had revealed the financial impact of larger-than-expected salary increases granted to state employees. “It’s mathematical at this stage, the deficits are going to be greater,” he explained. Mr. Girard had refrained from repeating his government’s commitment to restoring budgetary balance in 2027-2028, at the end of his plan which has already required the suspension of the law in order to add two years to the five planned for reach this goal.
In addition to the additional increases for state employees, the minister highlighted the downward revision of the Bank of Canada’s economic growth forecasts for the year 2024. “The economy is practically stopped in a period of stagnation” , he specified.
In its update last November, the Legault government forecast a deficit of four billion dollars, after payment to the Generations Fund, for 2022-2023. It then decreased by one billion per year until balance returned in 2027-2028.
A possible postponement
At the end of November 2023, the government adopted a new Balanced Budget Act which completely replaces the previous one. The text still imposes a five-year limit to eliminate deficits, but it contains relaxations.
In the previous version, it was possible to declare larger deficits during the execution of a plan without exceeding the five years initially planned. The only way to delay the return to balanced budgets was to suspend the application of the law. The text adopted in December now provides a new reason to postpone this moment when “an economic recovery less strong than expected at the end of a period of economic slowdown or a recession” occurs.
In parliamentary committee, while studying these modifications included in an omnibus bill, Mr. Girard pleaded for more flexibility. “The application of the current law, in a context of significant economic slowdown, has proven to be too rigid,” he said. “Certain concepts that this law recommends must be modified in order to make its application more flexible and simpler, while maintaining the constraint linked to respecting a balanced budget. »
During consultations on the bill, economist Luc Godbout insisted on the importance of setting the criteria which determine “an economic recovery less strong than expected”. The professor from the University of Sherbrooke had suggested that a drop of more than 25% in the expected growth of gross domestic product (GDP) was part of this. “I think we are starting to see a significant change,” he then told Minister Girard.
The new version of the law was adopted as proposed last December, without specifying criteria.
A plan or not
Even if he chooses not to invoke a GDP lower than his forecasts, Mr. Girard could still present a new plan, believes Professor Godbout. “We give ourselves the right to present a new plan to return to balanced budgets since the old law no longer exists,” explains the economist in an interview.
Despite this, it is possible that the minister will stay the course as planned, he said. “That doesn’t mean that the minister is giving up on the plan, but it means that he has the opportunity to present a new one,” explains Mr. Godbout. Under the new law, the Legault government can actually wait until next year to table a new plan to return to budget balance.
Director of Mr. Girard’s cabinet until 2022, Philippe Gougeon also believes that the plan to return to balance was invalidated by the adoption of the new law. The one who is now director at the consulting firm AppEco deplores that these changes were adopted with indifference. “It really went under the radar,” he notes. “But the flexibility he has given himself could mean that he does not have to immediately submit a plan to return to a balanced budget. It will depend on how he interprets his law. »
The president of the public policy committee of the Association of Quebec Economists (AEQ), André Lévesque, believes that the government will not have to cite difficult economic conditions to present a new plan to return to budget balance. “The plan that exists, in a way, it disappears because it’s like they abolished the old law,” he said.
Mr. Lévesque, who participated in the consultations on the bill, asserts that this element went unnoticed. “Giving yourself more flexibility is one thing. Completely restarting the counters from zero is another thing. We’ll really see what they’re going to do. Fundamentally, it will be a question of seeing what horizon they will give themselves for the return to budgetary balance. »
Austerity or rigor?
By confirming that the salaries of state employees would widen the deficit, Mr. Legault defended himself from wanting to resort to austerity. Mr. Girard assured that the Health and Education budgets would increase in particular because of these salary increases.
For Philippe Gougeon, it is not possible to talk about austerity if the two major missions of the State are preserved. This lesson was learned from the financial measures taken by the Liberal government of Philippe Couillard, which have left their mark. “The Couillard government wrote the book or the chapter on what not to do: what is written in it is not to cut health and education. »
Once this is established, Mr. Gougeon expects spending growth to be lower in other departments, between 0% and 1%. But he judges that programs linked to the ministries of Family, Immigration and the French Language should be preserved. According to him, cuts would be easier at the Ministry of the Economy, where budgets have been increasing in recent years. “The tax measures have been very generous. So, at the political level, the consequences of affecting business aid envelopes are really lower,” he explains.
Luc Godbout believes for his part that Minister Girard is in a complex situation due to the constraints imposed on him. “The mandate he has from the Prime Minister is a bit like squaring the circle. It’s: “You don’t have the right to increase taxes, you don’t have the right to do austerity, but make this deficit disappear.” » The professor believes that a return to balanced budgets can only be achieved with a reduction in spending. “The Minister of Finance is in a strange chair, because revenues need to increase,” he explains.
In its pre-budget submission, the AEQ noted that in 2022-2023, the expenditures of departments and agencies were still higher than their pre-pandemic level, even if the costs linked to COVID-19 (2.3 billion of dollars) were marginal. In Quebec, program spending was 14% higher per capita than the Canadian average in 2022-2023, while this gap was 6% in 2017-2018, the document indicates.
“Unless there is an incredible improvement in productivity, there will be no growth that will save the day in terms of income,” says André Lévesque. “For the next five years, the rate of growth in spending will have to be slowed. »