In a context of economic uncertainty, the CAQ government of François Legault granted Quebec taxpayers $ 1.7 billion in annual tax cuts on Tuesday after setting a new objective for the reduction of the State debt. .
In tabling his budget for 2023-2024, the Minister of Finance, Eric Girard, declared that he will reduce the tax burden on Quebecers, as promised by the Coalition avenir Québec (CAQ) during the last election campaign.
This tax cut is financed by a reduction in payments to the Generations Fund, created in 2006 to reduce Quebec’s debt.
To finance this measure, which will cost $1.7 billion, payments to the Generations Fund will be reduced. They will average $2.6 billion per year over the next five fiscal years. Without the tax cut, the revenue allocated to the Generations Fund would have been $3.9 billion in 2023-2024 and $5.4 billion in 2027-2028.
“I think we found the right compromise,” said Mr. Girard on Tuesday during a press conference. If we hadn’t made tax cuts, we would have reduced the net debt by 7.5% in ten years, whereas now we’re going to do it in 15 years. There are benefits because we will reduce the tax burden on Quebecers. »
After achieving his debt reduction targets, Mr. Girard has set a new goal of reducing net debt to 32.5% of gross domestic product (GDP) by 2038. As of March 31 , Québec’s net debt will amount to $206.8 billion, or 37.4% of GDP.
Mr. Girard said that 4.6 million of Quebec’s 6 million adults will benefit from a tax reduction from the next fiscal year, which begins on 1er april.
The first two tax brackets are reduced by one percentage point for taxpayers whose income is less than $98,450. The maximum tax savings will be $814 for the highest salaries, while it will be $210 for someone with an annual income of $40,000.
Mr. Girard defended himself from favoring the wealthiest Quebecers with tax cuts. He recalled the improvement in assistance for seniors aged 70 granted in December.
“This is an extremely important measure that will affect a million people,” argued the minister, also highlighting new sums for housing assistance announced on Tuesday.
A timely stimulus
The Minister of Finance believes that the “stimulus” of tax cuts will arrive just in time, starting in July, when the Quebec economy could spawn in the waters of a recession.
Mr. Girard also maintains that Quebec is exposed to a 50% risk of negative economic growth over the next fiscal year.
“Weakness in the economy is expected in the second and third quarters of 2023,” he said.
The budget plan nonetheless puts forward a reference scenario that calls for economic growth of 0.6% this year and 1.4% next year.
“Economic forecasts fluctuate,” however conceded Mr. Girard.
The current uncertainty is reflected in its budget by an alternative scenario which puts forward two hypotheses, either a recession with a 0.8% drop in GDP in 2023-2024, or stronger than expected growth, i.e. 2%, of the economy. Quebec economy.
On Tuesday, Mr. Girard referred to the bank panic that rocked two American banks and a Swiss bank in recent days to illustrate the current context.
“For the past 10 days, there has been instability in the financial markets which makes the lower scenario more likely than the bullish scenario,” he said.
After the surge in the cost of living in recent months, the budget plan provides for a gradual return to normal, with an inflation rate of 3.5% in 2023 and 2.2% in 2024.
Fiscal balance
Minister Girard affirmed that financial provisions ensure that a balanced budget will be achieved by 2027-2028, as planned, regardless of the scenario that will materialize.
The path to get there varies slightly. For example, rather than a budget deficit of $6.5 billion forecast in the 2022-2023 budget, the budget tabled on Tuesday revises this amount to $5 billion, due to higher revenues in recent months.
The negative budgetary balance of 2.3 billion in 2023-2024, estimated in December 2022, has widened to 4 billion, due to the measures announced Tuesday in the budget.
In addition to the tax cut, the government’s plan provides for an injection of 1 billion into the health care network, in particular to perpetuate the vaccination and screening centers set up during the pandemic, which could offer sampling services.
An additional $740 million will also be used next year to promote French language and culture, promote housing affordability and provide childcare services.
Health spending continues to dominate ministerial portfolios. They will amount to 59 billion in 2023-2024, up 7.7% compared to the previous year. Education follows with a planned budget of 20 billion, or 6% more than during the previous financial year.
In total, the planned expenditures for all departmental portfolios, during the fiscal year beginning on 1er next April, are 138.4 billion, up 1.2%.
The Minister of Economy and Energy, Pierre Fitzgibbon, is the one who will receive the most generous increase, ie 12.3% more in his ministerial portfolio. The superminister will have a budget of $3.7 billion, which places him between that of Municipal Affairs, at $4.5 billion, and that of the Environment, at $2.3 billion.
pink glasses
Liberal finance critic Fred Beauchemin accused the government of “seeing life in pink” with its forecast for GDP growth of 0.6% this year, which contrasts with the more pessimistic reading of analysts from the private sector.
Mr. Beauchemin referred to the bankruptcy of Silicon Valley Bank in the United States and the takeover of Credit Suisse, which, according to him, are harbingers of a credit crunch that will not spare Quebec.
“It succeeds in tightening banking conditions which brings us even more seriously towards an economic slowdown,” he said.