Slowing inflation is underway and it is not impossible that it will go fast enough for the Bank of Canada to start cutting interest rates from the summer, says the Minister of Finance of Quebec , Eric Girard.
“The decline in inflation has begun. It’s real. And that will help us,” he said Friday during a teleconference organized by the Chair in Taxation and Public Finance (CFFP) at the University of Sherbrooke for the launch of the 2023 edition of his Assessment of taxation in Québec.
From 6.8% last year, average inflation in Quebec should drop to 3.7% this year, according to officials from his department. But it is important to remember that we are talking about an average here, he insisted, and that Quebec expects it to be back just inside the target range of 1% to 3% of the Bank of Canada at the end of the year.
However, last year’s rise of 4 percentage points in central bank interest rates will be a determining factor for consumption, investment and confidence in 2023, observed Eric Girard. “If inflation falls rapidly, from mid-year, we could have rate cuts and therefore reduce this effect, which is the main source of the economic slowdown. »
At the time of his last economic and financial update, last December, the Minister predicted a drop in economic growth in Quebec — from 3.1% in 2022 to only 0.7% this year —, while specifying that, given at this point, there was almost a 50% chance of falling into negative territory. And “if I had made the forecast for the last day of 2022, it would probably have been more 0.5% than 0.7%”, he admitted on Friday given the constant evolution of the situation.
Eric Girard nevertheless wishes to respond to those who, in the light of the negative growth recorded in the 3e quarter of 2022, claim that the Quebec economy had already entered a recession at the end of last year. This decline during the summer was essentially attributable to the decline in the external sector, he reminds them. And most economic indicators for the last three months of the year, including those on employment, are positive, he hammered. Also, “I take the liberty of asserting that, with all the information I have today, Quebec was not in recession at the end of 2022, contrary to what some analysts are saying” .
The darkening of the economic outlook will probably not cause the CAQ government to back down on its promises of tax cuts, even if its pre-budget consultations have not yet begun. “We are always interested in listening to what people have to say,” assured the minister, “but in general, we are a government that implements what we have promised.”
Eric Girard will also launch other consultations in February, this time on the Régie des rentes du Québec (RRQ). Carried out every six years, this review exercise will examine, among other things, the consequences of increasing life expectancy, how to better take into account the needs and desires of older workers, as well as the ideas e might want to borrow from the latest reforms of the Canadian counterpart of the QPP, the Canada Pension Plan.
Everything in its time
Introducing his new Assessment of taxation in Québecthe holder of the CFFP, Professor Luc Godbout, wanted the Legault government to begin by setting the new targets and deadlines for its Balanced Budget Act to get a better idea of the real room for maneuver it will have for its tax cuts.
When we add up all the specific measures deployed last year by the various levels of government to help citizens cope with the soaring cost of living, it is in Quebec that the support was the highest. , notes the CFFP. Totaling 7.5 billion or 1.7% of the gross domestic product, this total aid to Quebec was 3.3 times greater than the average for the other Canadian provinces and almost 6 times greater than Ontario where, however, it was elections are also held.
“If we do not question the fact that something had to be done to combat the effects of inflation on households, it would be preferable, in the future, to limit ourselves to actions targeting more precisely the low income”, notes Luc Godbout. Such assistance should no longer be necessary this year, in particular because the indexing mechanisms of tax systems will take over.