Photographer: Christinne Muschi/Bloomberg

Quebec Sees 2016-17 Surplus Swelling Tenfold to C$2.5 Billion

  • Canada’s second-most populous province emerges as fiscal star
  • S&P upgrades its debt, giving it a better rating than Ontario

Quebec’s second straight budget surplus will likely be a whopper.

Canada’s second most populous province posted a surplus of C$2.49 billion ($1.87 billion) for the fiscal year ended March 31, according to preliminary data released Thursday by the government. That’s 10 times as large as the C$250 million surplus forecast by Finance Minister Carlos Leitao in his March 28 budget. Final figures will be announced “in the fall,” Leitao told reporters Wednesday.

After years of running deficits, Quebec has emerged as a fiscal star of sorts by balancing its budget and reducing debt as a proportion of output. On Friday, S&P Global Ratings upgraded Quebec to AA- from A+, marking the first time the province has enjoyed a better credit ranking than neighboring Ontario, whose debt is rated A+.

“This surplus confirms the solidity of our financial framework,” Leitao said on a conference call with reporters. “Sound public finances are an essential condition to economic prosperity.”

Quebec will allocate the entire surplus to its stabilization reserve, which will swell to about C$4.7 billion, Leitao said. The increase in the reserve will allow the province to better withstand unforeseen shocks such as floods or a sudden slowdown in the economy, he said.

The preliminary surplus comes after a C$2 billion contribution to the Generations Fund, created in 2006 to reduce net debt. Assets of the Generations Fund, run by the Caisse de Depot et Placement du Quebec, now total about C$10.6 billion and are forecast to more than double in five years.

‘Prudent’ Policies

Own-source revenue of C$59.22 billion for fiscal 2016-17 was C$580 million greater than forecast in Leitao’s budget, driven by higher corporate taxes, the finance ministry said. Quebec’s program spending was C$633 million less than forecast, while the province saved C$53 million on debt servicing costs.

S&P expects Quebec to “extend its record of prudent fiscal policies, with strict cost controls and growing tax revenues keeping its budget in surplus and causing its debt ratios to further shrink over the next couple of years,” the New York-based credit rating agency said Friday.

The improved credit rating will likely lead to lower debt servicing costs starting in fiscal 2018-19, Leitao said Wednesday without being more specific.

Quebec is forecasting balanced budgets for the next five years, according to Leitao’s budget. The minister told Bloomberg News in May the government was mulling another cut in personal income taxes next year after eliminating a provincial healthcare levy and raising the basic personal income tax threshold by 28 percent.

Even with the improving fiscal situation, Quebec remains Canada’s most indebted province relative to gross domestic product. Its adjusted debt -- which includes unfunded pension liabilities and municipal debt -- represents about 59 percent of GDP, according to a March 29 report from DBRS Ltd., the Toronto-based credit rating company.

Quebec’s unemployment rate dropped to 6 percent in May, the lowest since at least 1976. That’s better than the 6.6 percent rate for all of Canada.

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