Quebec Premier Sees ‘Structural’ Changes Keeping Budget Balanced

  • Province holds to zero-deficit pledge despite weaker growth
  • Streamlining education, overhauling tax system next on agenda

Quebec is committed to balancing its budget beyond this year as it mulls tax cuts while preparing to restore some funding for education, Premier Philippe Couillard said.

Finance Minister Carlos Leitao’s fiscal 2015 budget, introduced in March, is the province’s first in seven years to balance the books. While Leitao said this month economic growth in calendar 2015 will likely fall short of forecasts, the zero-deficit goal isn’t at risk.

“This year is done, and next year I see it happening again,” Couillard said in an interview Monday at Bloomberg headquarters in New York. Fiscal 2016 “is going to be a little bit tight, but we will keep it balanced. The spending adjustments that we’ve made are structural. We reduced the size of some of our organizations, the scope of some of our missions, in order for the savings to be recurrent, and not only be a one-time wonder.”

Balancing the budget in Canada’s second-most populous province was a central pledge of Couillard’s platform in the 2014 election that swept his Liberal Party back to power. Having saved more than C$200 million ($149 million) a year through changes to hospital oversight, the premier is pressing ahead with a plan to streamline the education system.

Leitao’s budget calls for program spending to increase 1.2 percent in the year that began April 1. Health and social service costs, the government’s largest expenditure, are projected to rise 1.4 percent while education, the next biggest item, climbs 0.8 percent.

Labor Unrest

“We have to act on all sectors of government,” said Couillard, a former health minister. “Healthcare and education are such large parts of our expenses that you cannot hope we are going to balance the budget without touching them.”

Unions and economists such as University of Quebec in Montreal Professor Pierre Fortin have criticized the Liberals for reining in spending, saying cuts undermine both services and the economy. Educators and nurses have threatened to strike if the government isn’t more generous in negotiations, with a major teachers’ union set to rally Wednesday in Montreal.

“People are demonstrating and not happy -- I’m not pretending that they are happy -- but we see the reward coming down the line,” Couillard said. “Once the budget is solidly balanced then we can reinvest -- particularly in education, which for me is the first priority.”

Quebec will “certainly” boost education spending in fiscal 2016, the premier said.

Tax Overhaul

Couillard is also considering changes to the tax regime after a government-commissioned report, led by University of Sherbrooke professor Luc Godbout, recommended the province increase its sales tax and reduce income taxes to bolster economic activity.

Taxes represent 37 percent of Quebec’s gross domestic product, according to Godbout’s report. That exceeds the 29 percent average in the rest of Canada, the U.S. average of 24 percent, and the 34 percent average for all members of the Organization for Economic Co-operation and Development.

“Our mix of taxation is not ideal for economic growth,” Couillard said. “Mr. Godbout and his colleagues have issued recommendations, which we are studying very carefully, and probably we’ll take action.” The premier reiterated a pledge to introduce “significant tax reform” for individuals and for corporations in a bid to provide “better incentive for work, investment and job creation.”

Electric Utility

Asked whether Leitao would include the changes in his next budget, Couillard was non-committal. “Who knows? It could happen,” he said.

He was more definitive when asked whether Quebec would consider emulating Ontario’s decision to sell a minority stake in its government-owned utility. Montreal-based Hydro-Quebec, Canada’s biggest electricity utility, is set to pay the province a dividend of C$2.75 billion this fiscal year, budget documents show.

The premier sees “a big difference between a one-time injection of funds from selling an asset, and the recurrent guarantee of funding that you get in the budget from Hydro-Quebec.” Noting the utility yields “a lot of revenue for us now,” Couillard said he will monitor what happens in Ontario “but at the moment, we have no intention of privatizing partially or totally Hydro-Quebec.”

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