The Legault government wants to “modernize” the Balance Act budgetary which became impractical in times of recession.
There Balanced Budget Act was adopted by the government of Lucien Bouchard in 1996 in order to redress the financial situation of Quebec. It provides that the Ministry of Finance determines a plan to return to budget balance over a five-year horizon when the government records a deficit of at least 1 billion.
However, the provisions of the Act became impractical during a period of recession, when the economic consensus considers that it is normal, even necessary, to resort to red ink. In the past, successive governments in the National Assembly have been forced to suspend the Balanced Budget Act during a recession, because the five-year time frame for posting a surplus was too tight. This is also what Quebec had to do during the last recession linked to the pandemic.
“As soon as there is an economic slowdown, we must suspend the Act,” explained Finance Minister Eric Girard on Friday during a press scrum on the sidelines of his speech to the Council on International Relations of Montreal (CORIM). ). […] The Law, as it is formulated today, encourages it to be suspended too frequently. »
Accounting deficit
During his speech, Mr. Girard mentioned that Quebec intended to “modernize” the Law on balanced budget. The trigger threshold of 1 billion no longer reflects the economic and budgetary situation of Quebec, according to him.
“One billion with the nominal GDP of Quebec which reaches 500 billion today, with the fact that a deficit of 1 billion is really a surplus of 1.4 billion because we contribute 2.4 billion to the Generations Fund. »
The new trigger that we are proposing is that if we are in a deficit in the accounting sense, if the deficit is greater than the contribution to the Generations Fund, […] if our income is really lower than our expenses, we will have to enter a period of absorption.
Eric Girard, Minister of Finance
The fact that the Balanced Budget Act did not take into account the payment to the Generations Fund was not unanimous.
Civil society groups and left-wing think tanks considered this provision too harsh, which underestimated the government’s fiscal room to finance other priorities such as public services or the fight against climate change.
Business associations and economists saw it as a sort of safeguard that ensured not only that the government limited periods of deficit, but also that it reduced the burden of the debt in the long term.
The issue was debated while previous targets were achieved more quickly than initially anticipated. In 2010, Quebec set the objective of reducing the weight of gross debt to 45% of GDP for the 2025-2026 financial year.
When the most recent budget was presented last March, the net debt represented 37.4% of GDP.
With the relaxation of the Balanced Budget Act to take into account the accounting deficit, Quebec will not set aside the objective of reducing the long-term debt, assures Mr. Girard. “We will also reduce the debt, which is at 38% net debt in relation to GDP, we will bring it to 28% over 15 years. If we hadn’t lowered taxes, we would have done it in 10 years. »