A fight to end the pandemic

Managing the pandemic, measures for SMEs, mental health, educational health, greater support to the most vulnerable, including abused and sexually exploited women: the Finance Minister tabled a budget built on front-page news from recent weeks with the Quebec National Assembly.

After two previous years of budgets marked by surpluses making it possible to finance electoral promises, Eric Girard is playing it safe with his third budget themed “resilience and trust”. These words are meaningful. The budget is resolutely focused on the effects of the COVID-19 pandemic and support for impacted companies. It simultaneously lays the foundation for recovery.

A return to balanced budgets has moved out from five to seven years. It’s the most realistic option if the government wants to keep its promise not to raise taxes, including income tax, while maintaining services. An extract from the budget documents is particularly revealing: “the government promises not to implement any measure to reduce the budget deficit as long as Quebec does not return to its pre-pandemic employment levels, likely in two years.” In other words, all tough decisions to cut the deficit are deferred… to after an election 550 days from now.

As opposed to last year’s budget which entirely missed the looming menace, the words “pandemic”, “cleanliness” and “COVID-19” are mentioned 478 times in the Budget Plan's 508 pages!

Unsurprisingly, health expenses skyrocketed by $10.3B (+5.8%), $2.9B as of this year. The hiring of 10,000 orderlies alone represents a recurring annual expenditure of $570M. After Health, Education (+ 4.6%) and Higher Education (+ 8.2%) get a sizeable piece of the pie: $403M over two years for the school system and $600M to deploy digital solutions, increase graduation rates and improve the health and well-being of staff and students.

To energize the economy, $4B will be injected over the next five years to stimulate investment by companies and accelerate the growth and the transition to Quebec’s new economy. $1.3B of this will go to connect to high-speed Internet. In line with the Premier’s ambition to reduce the wealth gap with Ontario, Quebec has announced a tax reduction on SMEs to the same level as Doug Ford’s province.

The government plans to oxygenate the economic sectors hit by the pandemic: Tourism (+$523M over six years), Culture (+$147M) and support for airports and airlines (+$18M). $193M in additional investments over two years will extend some assistance programs, including the Temporary Concerted Action Program for Businesses (PACTE) and the Emergency Assistance Program for Small and Medium-Sized Businesses (PAUPME).

Though we keep hearing about the Legault government’s “new economy”, it looks like we will have to wait until fall for the recovery’s centerpiece to make its entrance. Who knows, maybe it will be part of an inaugural speech a year before the election date, making an interesting opportunity out of the health crisis.

Meanwhile, they’re sweetening the Quebec Infrastructure Plan (PQI), now set at $135B, up $4.5B. When the Coalition Avenir Québec came to power, the PQI was around $100B. Close to $13.4B will be fast-tracked to the first five-year portion of the 2021-2031 PQI, and $77B will be invested over the next five years. Clearly, the Orange Cone Festival and Heavy Equipment Concerts will remain on the Marquee! The show must go on, renovating schools, building sports infrastructure and seniors homes, and laying the asphalt on Quebec's roads and highways in the furtherance of economic recovery and electoral promises!

The government wishes to alleviate any concern about supporting the economy by strengthening Quebec’s social safety net: $1B to protect the most vulnerable, including $408M over five years for social housing, $116M over five years for new subsidized childcare spaces, $10.5M over five years to address violence against women, $27M for community organizations, $150M over five years against the sexual exploitation of minors, and $143M for mental health and homelessness.

This budget contains few surprises for those who follow government activity. This is due to the flurry of aid programs announced throughout the past year and that are now entering into the government’s books. The government itself had sounded out new measures for the rest: export strategies, support to struggling sectors, forgivable loan programs, SPRINT program, etc. The government also took care to lower everyone’s expectations. Regardless, Minister Girard is proposing timely new initiatives that may please many clienteles.

We can say that this budget is aligned with Quebec’s current challenges. Though it has less elbow room, the Legault government has found the right balance for managing the end of the pandemic, strengthening the health system which revealed weaknesses, helping the most vulnerable, and propelling itself toward a recovery as soon as Quebeckers receive the final doses of the vaccine.

The budget in numbers

• Quebec’s real GDP fell 5.2% in 2020, whereas the drop was 5.4% in Canada.
• Due to the major repercussions of the health crisis on Quebec’s economic and financial situation, gross debt will be 49.5% of GDP on March 31, 2021.
• A gradual reduction of the gross debt to GDP is forecast for the coming years. Gross debt will be 47.0% of GDP on March 31, 2026, which is two percentage points higher than the Debt Act allows.
• This year’s deficit will remain at $15B, pegged upwards from November’s $12.7B forecast for 2021-2022 and $8.7B the following year. The finances are to be balanced within seven years, by 2027-2028. The government is thus breaching the Balanced Budget Act which limits governments to five consecutive years of deficits. No cuts are planned before Quebec returns to full employment by the end of 2022, right after the provincial elections.
• Expect a strong economic recovery. A 4.2% rebound in economic activity is expected in Quebec in 2021. Full employment will return in 2022.
• COVID-19 will have cost Quebec $30B by 2025-2026. This includes expenses and lost revenue due to reduced economic activity.
• Quebec has quantified for the first time the cost of the vaccination program against COVID-19: $400M.

Sectoral measures

Health

• $2.9B in 2021-22, to buttress our health system, including $2.3B to beat the health crisis; $316.5M to enhance senior services; and $264.2M strengthen health care and services.
• $15.2B by 2025-26 toward healthcare, including: $2.8B to recognize the extra efforts by healthcare workers, $2.8B to acquire protective material and equipment, $6.5B to improve services to the population and healthcare personnel, and $3.9B to sustainably improve healthcare.

Education

• $1.5B in additional support to young people to ensure that all youth can attain their full potential, especially in terms of academic achievement.

Stricter taxation on online commerce

• The government wishes to apply its QST on all foreign goods purchased online. This adjustment should bring in $1.8B in income within five years.

Accelerate growth and transition

• More than $4B in new measures are planned by 2025-2026 to promote growth and transition. These measures include $1.3B to accelerate the transition to high-speed Internet, $753M over five years to acquire new technologies, an extension of the tax holiday for major digital transformation projects and $217.9M over six years to support innovative projects.
• Investments are planned for infrastructure and research centres and to support innovation in the strategic sectors of forestry, tourism and cybersecurity.
• Quebec will reduce its SME tax rates to the same level as Ontario's.

Pillars targeted for export trade

• Investments will be made in strategic sectors of the economy so that Quebec businesses can increase their exports. The government is planning $167.4M over five years to continue developing the battery sector ($15M), renew the Quebec Aerospace Strategy ($95M more in the Strategy’s financial framework), and support the aluminum sector ($35M more in the Strategy’s financial framework).

Leveraging the Quebec Infrastructure Plan

• Quebec will invest in concrete to revive the economy. Some $4.5B will be added to the Quebec Infrastructure Plan, increasing it to a record $135B, 60% of which the government plans to spend over the next five years.

Labour

• An extra $403.6M to train, re-qualify and integrate immigrants to the labour market, re-qualify the workforce and integrate labour to the workforce, and support workforce development in IT ($28M over two years).

Regional development

• $523M over six years is planned to support and revive Quebec’s tourism sector, support the development of the forestry sector, modernize regional infrastructure, support transport services and localities, and promote the development of the biofood sector.

Culture

• The government is providing $392M over six years to promote culture, Quebec’s heritage and defend and strengthen the status of French as Quebec’s official and common language.

Sustainable development

• $136.5M over five years to protect the environment by improving water management, implementing accompanying measures for a sustainable recovery, putting into motion innovative solutions to address the challenges of sustainable growth and using natural resources responsibly to favor economic development.

Support for businesses hit by COVID-19

• The government is earmarking over $192M over two years to maintain the Temporary Concerted Action Program for Businesses (PACTE) and the Emergency Assistance Program for Small and Medium-Sized Businesses (PAUPME).
• It will extend the employer’s contribution to the Health Services Fund for employees on paid leave.
• It will further relax the calculation of hours paid for the Small Business Deduction.

Social measures

• Quebec will invest $150M over five years to address the recommendation of the Special Commission on the Sexual Exploitation of Minors report by drafting awareness campaigns and stepping up the fight against pimping.
• $1B is planned until 2025-2026 to deal with social housing and support vulnerable populations.

Financial sector

• The government has opted to maintain the compensation tax on financial institutions. It was to be abolished in 2024 but will now become permanent. This means an extra $550M in taxes on financial institutions between now and 2026.