Download quebec economic plan update

October 25, 2016
QUEBEC ECONOMIC PLAN UPDATE
The improvement in financial situation results in a surplus
for 2015–2016 and allows the implementation of several new measures
HIGHLIGHTS
•
While the Quebec government’s March 2016 budget was
calling for a balanced budget for fiscal 2015–2016, the
update published today indicates instead a $2.2B surplus.
Moreover, fiscal balance is still expected for the years
2016–2017 to 2020–2021.
•
This improvement is due to faster-than-projected growth
in consolidated revenue for 2015–2016 (+4.4% instead
of +3.6%), and a slower-than-expected progression by
consolidated expenditure (+0.7% instead of +2.0%).
•
The budget surplus, combined with a slight reduction in
the net retirement plans liability, has resulted in a $610M
reduction in gross debt for 2015–2016. This is the first
time the debt has gone down since the end of the 1950s. It
should start climbing again, however, as of 2016–2017. The
debt to GDP ratio will keep dropping nevertheless, reaching
48.6% as at March 31, 2021.
•
Today’s
update
introduces,
between
now
and
March 31, 2020, a total of approximately $2.4B in new
expenditures and/or infrastructure, as well as in tax relief
for individuals:
THE BUDGET SURPLUS INFLATES
THE STABILIZATION RESERVE
The improvement in the financial situation of the
Quebec government is due mainly to a perfect blend of
stronger economic growth and commendable budgetary
discipline. Let’s point out that the economic conditions in
the province started improving over the last few months
with, among other things, sustained employment growth, a
substantial increase in retail sales, and an improvement in
the confidence level of both consumers and corporations.
This translated into faster growth in own-source revenue
in 2015–2016. The benefits of the improvement in
economic conditions should continue in the coming
years, and should result, according to the Ministère des
Finances, in an increase in the budget balance of $399M in
2016–2017, $323M in 2017–2018, and $449M in 2018–2019.
We should also mention that the progression in consolidated
expenditure has been limited to only 0.7% in 2015–2016,
showing strict control over public spending.
The improved financial situation gives the Quebec
government additional budgetary leeway, allowing the
Ministère des Finances to announce several new budgetary
measures in its update without compromising its objective
of maintaining a balanced budget over the coming years.
In the health area, the new expenditures will go to home
care, residential and long-term care centres (CHSLDs),
and intermediate care. In education, the government will
put new money in the academic success of elementary and
secondary school students, adapting vocational training to
the needs of the labour market, training for new immigrants,
as well as financing sports federations. The additional
money spent in the regions will help support regional
economic development projects and foster tourism, through
festivals and events for example. In addition to contributing
to an improvement in public services, these measures should
have a positive impact on economic growth, thanks to the
√√ Health: + $1.0B (an increase in expenditures of $300M
per year starting in 2017–2018, and a $100M increase
in 2016–2017).
√√ Education: + $0.4B (an increase in expenditures of
$110M per year starting in 2017–2018, and a $35M
increase in 2016–2017).
√√ Regional economic development: + $0.4B (an increase in
expenditures of $100M per year starting in 2016–2017).
√√ Québec Infrastructure
2017–2018).
Plan:
+
$0.4B
(for
fiscal
√√ Complete elimination of the health contribution ahead
of schedule, on January 1, 2017: +$0.3B (in the last
budget, back in March, the health contribution was to be
lowered in 2017, to reach $0 to $800 based on income).
François Dupuis
Vice-President and Chief Economist
Benoit P. Durocher
Senior Economist
514-281-2336 or 1 866 866-7000, ext. 2336
E-mail: [email protected]
Note to readers: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.
I mportant: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that
are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group
takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are
provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein
are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2016, Desjardins Group. All rights reserved.
October 25, 2016
Budget Analysis
www.desjardins.com/economics
Table 1
Summary of transactions
In $M
Actual
Forecasts
2015–2016
2016–2017 2017–2018 2018–2019 2019–2020 2020–2021
Own-source revenue
- Variation (%)
81,222
4.9
82,070
1.0
84,271
2.7
86,800
3.0
89,326
2.9
92,007
3.0
Federal transfers
- Variation (%)
18,901
2.0
20,264
7.2
20,828
2.8
21,448
3.0
21,669
1.0
22,231
2.6
Total budget revenues
- Variation (%)
100,123
4.4
102,334
2.2
105,099
2.7
108,248
3.0
110,995
2.5
114,238
2.9
Program spending
- Variation (%)
-86,470
1.1
-90,138
4.2
-92,346
2.4
-94,904
2.8
-96,984
2.2
-99,380
2.5
Debt service
- Variation (%)
-10,009
-2.5
-10,047
0.4
-10,149
1.0
-10,376
2.2
-10,639
2.5
-10,989
3.3
---
-150
-150
-150
-150
-250
Balance
3,644
1,999
2,454
2,818
3,222
3,619
Generations Fund
-1,453
-1,999
-2,454
-2,818
-3,222
-3,619
Balance in the meaning of the Act
2,191
0
0
0
0
0
Gross debt
- % GDP
- Variation (%)
203,347
53.8
-0.3
208,061
53.7
2.3
211,838
52.9
1.8
213,619
51.6
0.8
213,770
50.0
0.1
214,138
48.6
0.2
Debt representing combined deficits
- % GDP
- Variation (%)
120,121
31.8
-0.9
118,122
30.5
-1.7
115,668
28.9
-2.1
112,850
27.3
-2.4
109,628
25.6
-2.9
106,009
24.0
-3.3
- Contingency reserves
Source : Ministère des Finances du Québec
reduction in the tax burden of individuals and increased
investments in infrastructure.
Some observers may note however that the update includes
a significant reduction of the contingency reserve compared
with last March’s budget. The reserve has dropped from
$400M to only $150M for fiscals 2016–2017 to 2019–2020.
For 2020–2021, the contingency reserve drops to $250M,
as opposed to $500M in the last budget. This change in risk
management is justifiable given the government’s improved
financial situation. Under the Balanced Budget Act, the
$2.2B surplus for fiscal 2015–2016 has been allocated to
the stabilization reserve. The monies in this reserve may
be used if needed to maintain a balanced budget over the
coming years. The balance of $2.2B currently available
in the stabilization reserve is a good safety net against
unforeseen events in upcoming years.
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