(Quebec) At least two billion dollars more than expected in tax revenues replenished the state coffers, the fruit of economic growth which, according to revised forecasts from Quebec, must cross the 6% mark. As room for maneuver has appeared, the Legault government’s mini-budget will offer financial relief to parents and low-wage earners, while realizing a “new economic vision” with the creation of a state-owned company dedicated to development. green hydrogen.
The anticipated deficit for the current year, which was set at 12.3 billion in March, will be revised downwards. Quebec remains on course for a return to balanced budgets in 2027-2028.
The Minister of Finance, Eric Girard, will unveil this Thursday the traditional economic and financial update of the government, an exercise that Prime Minister François Legault presents this year as a “mini-budget”.
It must be said that the parameters have changed a lot since the budget was tabled in March. First, the deficit forecast for last year, ending March 31, turned out to be much lower than expected, dropping from $ 15 billion to $ 10 billion.
Then, all the indicators for the current year have been green since the spring, even more than what had been anticipated.
According to the most recent monthly financial operations report of the Ministry of Finance, the deficit after three months of the year, from April to June, was only 359 million. In interview with Press, Eric Girard said recently that the deficit would be lower than the 12.3 billion forecast. It will be the same, still according to him, for the “structural deficit”, the one that will remain after the health crisis, which had been set at 6.5 billion per year. It should be remembered that the smaller the structural deficit, the easier the efforts to restore budgetary balance.
PHOTO JACQUES BOISSINOT, ARCHIVES THE CANADIAN PRESS
Eric Girard, Minister of Finance
In his March budget, Eric Girard forecast an increase in real gross domestic product (GDP) of 4.2% for 2021. However, economic growth is above forecasts. We will be beyond 6% in the mini-budget. One percentage point more than the percentage budgeted represents about $ 1 billion more in tax revenue for the government.
Quebec is still aligned with the average private sector forecast. And forecasters are now anticipating growth above 6%. The National Bank forecasts a real GDP increase of 6.5% for this year; Scotiabank 6.8%; Desjardins, 7%.
The government has already increased its spending recently, adding $ 1 billion to this column with its plan for the return of nurses to the public network. But overall, the budget balance is better than expected.
Childcare costs, solidarity credit and workers
In his mini-budget, Eric Girard will confirm an improvement in the tax credit for childcare expenses, which will reduce the bill for thousands of parents whose children attend an unsubsidized private daycare. The objective is for the cost to approach the rate of $ 8.50 per day in effect in early childhood centers (CPEs) and other subsidized childcare services.
There will also be a boost to Quebecers hit by the rise in the cost of living. The government wants to help low-income Quebeckers, which could involve improving the solidarity tax credit.
Quebec will announce new measures designed to encourage 60 to 69 year olds to stay in or return to the labor market.
It intends to put in place incentives to recruit more qualified teachers, which could take the form of a reduction in tuition fees for those who take a qualifying master’s degree.
Green hydrogen in the crosshairs
The mini-budget will also be an opportunity to materialize the government’s “new economic vision” that François Legault presented in Shawinigan on November 12, the day before his party’s general council.
PHOTO MARCO CAMPANOZZI, ARCHIVES THE PRESS
Prime Minister François Legault
The government also wants to develop new clean energies and will soon unveil a green hydrogen and bioenergy strategy. Eric Girard reserves financial resources for this strategy and must confirm the creation of a new company responsible for developing this sector, the Société québécoise de l’hydrogen vert. There are many debates to determine which of the Ministry of the Economy or that of Natural Resources will be responsible; the first was in the process of winning its case. Behind the scenes, we also discussed a form of shared custody, a model that would be rather unusual.
Hydrogen is in development across the world. Right now it’s 98% produced from fossil fuels – what’s called gray hydrogen. Green hydrogen is made from the electrolysis of water or biomass. Its interest is growing because of the objectives of reducing greenhouse gas emissions. With the creation of a state corporation, Quebec wants to accelerate the development of the sector.
The specter of an interest rate hike
It would not be the only economic aspect of the mini-budget. Quebec must also respond to the labor shortage. He wants to add 100,000 skilled workers in key sectors over the next few years: construction, information technology and engineering.
Eric Girard will be careful not to err on the side of overconfidence. Because there is a cloud on the horizon: the possibility of a rise in interest rates.
The Bank of Canada, which just kept its key rate at 0.25%, is forecasting a rise between spring and early fall 2022 due to the strength of the recovery and rising inflation.
This would inflate Quebec’s debt service, which, at $ 9 billion a year, is the government’s third largest item in the budget. An additional percentage point in interest rates would represent a bill of $ 2 billion.
With Denis Lessard, Press