Quebec plans to begin rolling back healthcare taxes while avoiding a deficit for a second year in a row, a rare feat among Canadian provinces struggling with slumping commodity prices and bloated balance sheets.
Canada’s second most-populous province will balance the books in the fiscal year beginning April 1, aided by a jump in exports and household spending, Finance Minister Carlos Leitao said Thursday. Quebec will start phasing out the health “contribution” as soon as 2016 -- a year ahead of schedule -- while boosting spending on education, the forestry industry and other measures to spur business investment, according to budget documents released on Thursday.
”Our ship successfully sailed through rough seas and we are now entering calmer waters,” Leitao said in the text of a speech to the provincial legislature in Quebec City. Balancing the budget ”was an essential step, because of the growing debt burden and because of the demographic changes that were already affecting us. We addressed the root causes of the Québec government’s persistent fiscal imbalance.”
Quebec, with its heavy manufacturing base, is benefiting from the drop in the Canadian dollar that has come with the slide in commodity prices, making its exports cheaper. Previous spending restraint allowed it to balance its books last year after six years of deficits. The government is now projecting balanced budgets until 2020.
It’s the first time since 2008 the province has posted two consecutive deficit-free budgets. British Columbia is the only other major province likely to avoid a deficit in fiscal 2016-17 -- with the help of a hike to its medical service-plan premiums. Alberta, home to the country’s energy industry may post a deficit of C$10 billion ($7.63 billion) in fiscal 2016-17 while Ontario, which also has a sizable manufacturing sector, is still working to reduce a deficit estimated at C$4.3 billion in the next fiscal year.
Quebec will balance its budget in 2016-17 even after contributing C$2 billion to its Generations Fund -- a fund designed to reduce net debt -- and keeping C$400 million in its contingency reserve. The reserve for 2015-16 is C$300 million.
The government expects to add about C$14 billion to the Generations Fund over the next five years, budget documents show. Managed by the Caisse de Depot et Placement du Quebec, the fund posted a return of 8.1 percent in 2015, the documents show.
“The government is sending a very strong signal debt reduction is the key priority going forward,” Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities, said in an interview.
A 2.8 percent increase in exports compared with 1.8 percent last year, and a pickup in household spending to 1.9 percent from 1.4 percent will help push growth to 1.5 percent this year. That’s short of the 2 percent forecast in last year’s budget, but up from 1.1 percent in 2015. Leitao’s 2016 forecast calls for gross domestic product to expand 1.6 percent.
The plunge in oil prices allowed the province to save C$4.7 billion on crude imports in 2015, budget documents show.
Revenue is forecast to climb 3.2 percent to C$102.6 billion in fiscal 2016-17, including C$20.2 billion in federal transfer payments, while program spending will rise 2.7 percent to C$68.2 billion.
Quebec will invest an extra C$1.2 billion in education over the next three years to renovate schools, build gymnasiums and hire additional staff, among other measures. Education and culture spending will rise to C$21.6 billion in 2016-17, a 3 percent increase from this year.
About C$850 million over five years will be allocated to measures aimed at spurring innovation. Most of the amount -- C$539 million -- will go toward a rebate on electricity to encourage investment in manufacturing and natural resources. Quebec expects the power rebates to generate C$2.6 billion in private investment by 2020, budget documents show.
A further C$230 million will be set aside to make forestry companies more competitive and increase the contribution of private woodlots to the province’s supply, Leitao said. Quebec’s forestry industry employs about 60,000 people.
Other investments announced Thursday include C$620 million over six years to restore abandoned mining sites and reduce environmental liabilities, and more than C$1.7 billion over 10 years on infrastructure as part of the so-called Plan Nord ”so that Quebec will be ready when worldwide mining demand recovers,” Leitao said.
Removing the health tax will cost Quebec of C$759 million in annual revenue once the measure fully kicked in, budget documents show. Leitao said he would like to go further and begin cutting personal income taxes when finances allow.
Borrowing in fiscal 2016-17 will be about C$14 billion, less than the C$18.2 billion forecast in late November. Quebec expects to borrow about $16 billion in 2017-18 and C$17.8 billion in 2018-19, the documents released Thursday show.
Quebec’s gross debt will be about C$208 billion as of March 31, budget documents show.
Gross debt will drop to 55 percent of GDP as of March 31 from
55.1 percent a year earlier -- the first annual decline since 2008-09. That still leaves Quebec well above Ontario, the next most heavily indebted province in proportion to the size of its economy. Ontario’s debt-to-GDP ratio is 46 percent.