On March 22, Quebec Finance Minister Eric Girard returned to the Chamber for the second time in three months. He came to present the major points of the 2019-2020 Quebec budget to the business people of Montréal, keeping up a tradition established by his predecessors.
An economist by training and the former treasurer of National Bank of Canada, the minister was in his element. He took the time to explain the different measures planned in the budget, and was able to clarify sometimes complex statistics and accounting forecasts.
The Quebec government’s long-term goal is to increase Quebec’s yearly economic growth to 1.8% from its current 1.3%. According to the minister, this 0.5% gain could make Quebec 13% richer over the next 25 years. Mr. Girard emphasized that 17% of the budget is dedicated to measures aimed at increasing the long-term potential of the Quebec economy. The largest part of the budget remains dedicated to education and health spending, which accounts for 44% of the total.
During the preparation of the 2019-2020 budget, the minister met with over 120 groups and received recommendations from 3,150 respondents as part of pre-budget consultations.
Here are four main points from his speech.
Four factors that explain the success of the Quebec economy
Minister Eric Girard revealed four factors that explain Quebec’s budget surpluses over the last four years:
- The success of the global economy, which particularly benefits open economies like Quebec;
- Federal transfers, which have increased at twice the rate of the Quebec government’s independent revenue over the last five years;
- The previous government’s sound management of public finances, which the minister did not hesitate to emphasize;
- Low interest rates, which help reduce the interest paid on Quebec’s debt.
These factors have cleared the way for a recurring surplus of $2.3 billion per year. The minister believes that this amount will be available every year.
This surplus has allowed the government more room to manoeuvre in terms of funding for certain priority issues. For example, the minister mentioned compensation for taxi permit holders, the decontamination and development of strategic land and measures to alleviate the strain on users of the Deux-Montagnes commuter train line, who are affected by the construction of the REM line.
An equation to guide the minister
The government wants to stimulate business investment and has implemented concrete measures to achieve this. In the fall, it announced an amortization rate increase of 100% for certain investments. It also reduced the actual tax rate paid on new investments.
Next, the minister mentioned his intention to increase participation in the labour market by encouraging experienced workers to delay their retirement. He wants to increase investment in education, which is the main determining factor of productivity. He is also looking at reducing Quebec’s debt. He believes these measures will contribute to increasing Quebec’s GDP per capita.
The minister has established an equation as a sort of guide to reaching the government’s goal of creating wealth for Quebecers.
Minister Girard’s equation: stimulate business investment + increase participation in the labour market + increase investment in education + reduce debt = a more prosperous Quebec.
Two key employment measures
The government and the business community agree that the labour shortage issue is a priority for the Quebec economy. The minister noted that the number of vacant positions is currently 117,000.
In his speech, Eric Girard discussed two key measures that specifically aim to keep experienced workers in the workforce in order to tackle this problem.
Quebec’s labour force participation rate exceeds Ontario’s for all ages except 60 and over (21% versus 25%). According to Mr. Girard, reaching 25% would mean 90,000 more workers in the labour market.
1st measure: An increase in the incentive tax credit for continuing to work. From now on, workers over 60 who remain in the workforce will see their tax burden reduced by $1,500 for the first $10,000 earned.
2nd measure: A reduction in experienced workers’ payroll expenses for 34,000 SMEs. The minister mentioned that often, starting at age 60, employees work part-time. Two employees then occupy the equivalent of one full-time position. Essentially, this means that SMEs must pay the expenses twice over. The new measure will accommodate this new reality and include $100 million in funding, which could be increased if the measure proves effective.
Goal: Catching up to Ontario and the rest of the country
Minister Girard presented the foundation of his budget as the beginning of catching up to Ontario and the rest of Canada in terms of wealth creation. Quebec is behind in many respects, particularly in terms of productivity and private investment. The minister recognizes that it will take time, but the government is making it a priority.
The minister pointed out that in Quebec, the tax ratio is 37.3%, compared to 32% in the rest of the country. Furthermore, Quebec is the second most indebted province after Newfoundland. Mr. Girard mentioned that debt reduction was a priority and would give the government more room to manoeuvre in terms of funding services.
Quebec is on a positive trajectory. Minister Girard estimates that around 2024, Quebec’s ratio of debt to GDP will be less than Ontario’s and at the same level as that of the federal government. The government has committed to reducing the tax burden of Quebecers once this target has been reached.