Quebec will balance its budget for the third straight year, giving Finance Minister Carlos Leitao more room to lower taxes for workers and businesses while increasing spending on transit and health care. Quebec forecasts balanced budgets for the next five years, after a surplus of C$250 million ($190 million) for the fiscal year ending March 31, according to budget documents released Tuesday in Quebec City. The improved fiscal outlook allows the province to set aside C$5.3 billion for a debt repayment fund in the next two years alone. After three years of spending restraint, Premier Philippe Couillard’s government is starting to turn on the taps again—about 18 months ahead of a scheduled election in Canada’s second most populous province. The windfall will be used to lower income taxes, provide a rebate on health premiums and help finance a new transit network in Montreal. “We have our public finances under control,” Leitao said Tuesday in the text of his speech to lawmakers. “The economy is growing. Quebec is in better economic and fiscal health. Now we can invest more in public services.” Economic growth in calendar 2017 will be 1.7 percent, exceeding the 1.5 percent forecast in October. Leitao expects growth next year to slow to 1.6 percent. Quebec will lag behind the national growth rate of 2.2 percent this year, based on forecasts compiled by Bloomberg. Program spending will rise faster than revenue for the second straight year, jumping 3.8 percent to C$93.9 billion. Revenue will rise 2.8 percent to C$84.3 billion, excluding federal transfer payments. ‘Cyclical’ Surpluses “It’s a credible budget, which benefits from previous efforts to control spending, but the surpluses are mostly cyclical,” Stefane Marion, chief economist and strategist at National Bank of Canada, said in an interview. “Quebec is at full employment, which makes it that much easier to come up with some type of fiscal stimulus.” Quebec will raise the basic personal income tax threshold by 28 percent to C$14,890 as of Jan. 1. The measure will provide tax relief worth about C$1.41 billion for 4.3 million taxpayers over five years. The government will also use some of the surplus for 2016-17 to retroactively refund a provincial health tax to taxpayers—at a cost of C$440 million. All taxpayers earning less than C$134,000 will pay no health contribution for 2016. Quebec eliminated the health-care contribution starting Jan. 1, one year earlier than planned, forfeiting C$253 million in revenue over three years. Still, not all taxes are falling. A compensation tax on wages paid by banks and other financial institutions will be extended until March 2024. The tax, which was supposed to expire in 2019, will raise C$1.31 billion for the government over five years. Debt Reduction Leitao will balance the budget in 2017-18 even after contributing C$2.49 billion to the Generations Fund—a provincial fund created in 2006 to reduce net debt—and a C$100 million contingency reserve. 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. Quebec’s net debt will amount to about C$185 billion as of March 31, budget documents show. “Quebec has a long term plan to get back to a better fiscal situation, and they are adhering to that,” Brian Calder, senior bond trader at Franklin Bissett Investment Management, said by telephone from Calgary. “Putting more money into the Generations Fund gives them more flexibility. They still have a lot of work to do to bring the overall debt level down.” Assuming Leitao’s projections hold true, Quebec would be one of the few Canadian provinces to avoid a deficit next year. British Columbia, Canada’s westernmost province, last month forecast a C$295 million surplus for fiscal 2017-18. Ontario has said it expects to balance the books next fiscal year. Transit Funding Quebec will contribute C$1.28 billion to help finance a C$6 billion light-rail transit line that the Caisse de Depot et Placement du Quebec plans to build in Montreal. Quebec has urged Canada’s federal government to match the investment. The Caisse, the provincial pension fund manager with net assets of about C$271 billion, is pushing for construction of the rail network to begin later this year, with trains running at the end of 2020. It plans to contribute about C$2.7 billion of the project’s costs. Among other budget measures:
  • Quebec is planning to spend C$91 billion on infrastructure in the decade ending in 2027, Leitao said. That’s an increase of C$2.4 billion compared with the 10-year forecast announced a year ago.
  • Spending on health and social services, the government’s biggest expenditure, will climb 4.3 percent next year to C$40.2 billion. Education, the next biggest budget item, will increase 4.4 percent to C$22.7 billion. Leitao’s budget earmarks C$1.1 billion over five years for post-secondary institutions and universities.
  • Quebec will also set aside C$36 million to support newspaper publishers. About C$24 million will go toward helping the “digital transformation” of print news, with the rest aimed at compensating municipalities for the costs associated with the recovery and recycling of packaging, print materials and newspapers.
  • Corporate income tax rates will drop to 11.5 percent by calendar 2020 from 11.9 percent last year. Payroll taxes for small and middle-sized businesses will also be reduced.
  • Quebec will extend a tax holiday for large investment projects by three years until the end of 2020, spurring as much as C$8 billion of additional investment, the government said. So far, 23 projects representing a combined C$14.7 billion have applied for the credit, budget documents show.