LIBERALS TURN ON THE SPENDING TAP IN PRE-ELECTION BUDGET
WHAT YOU NEED TO KNOW
  • Finance Minister Carlos Leitão announces 4th consecutive balanced budget

  • $1 billion increase in spending on families

  • New "Netflix Tax" on online service providers

  • Minor tax breaks for small businesses

  • $10 billion earmarked to reduce provincial debt 
ANALYSIS
Quebec Finance Minister Carlos Leitão unveiled his fifth budget today, balancing it for the fourth year in a row. After a mandate of belt-tightening, this is the first budget with a significant increase in spending – even dipping into government reserves to the tune of $1.6 billion pay for it. As with most pre-election budgets (a vote will take place in October of this year), critics are accusing the Liberal government of loosening the purse strings for electoral gain.

The Liberals will need all the help they can get. A recent Leger poll puts the government’s support at only 26%, compared to the third-party Coalition Avenir Québec (CAQ) with 37% – approaching majority government territory. The Parti Québécois (PQ) trails with 22% support. CAQ leader François Legault has managed to tap into popular discontent with the government, but the high support worries some CAQ supporters. In the previous election, the CAQ peaked in the polls early in the election and lost their edge before the vote.

The Couillard government cast this budget on three pillars: healthcare, education, and transportation. Overall, spending will increase by 4.5% next year, as opposed to 5.6% this year. Below are some of the key takeaways:

Hiking spending on healthcare and education

The Couillard government has committed to increased spending in healthcare and education. This is a clear deflection of the accusation of ʺausterityʺ leveled by both opposition parties over the past few years. For 2018-2019, spending on education is set to increase by 5%, and healthcare spending will jump 4.6%. Given long wait times at Quebec hospitals and crumbling schools, this will be welcome news for families.

Tax measures

While there were no significant tax cuts, some good news for small business: the government will lower the corporate tax rate on service and construction companies to 4% from 8% by 2021. They will also raise the tax credit limit on non-subsidized daycare costs for families and create a new $750 tax credit for individuals who purchased their first home. Homeowners who make eco-friendly renovations will also be able to take advantage of the RénoVert tax credit up to $10,000 until March 31, 2019 – a one-year extension.

“Netflix tax”

The government made good on its promise to tighten fiscal regulation of so-called “online giants” like Netflix and Amazon. Despite a perceived lack of will to act at the federal level, the Quebec government will force foreign-based online vendors to collect the Quebec provincial sales tax, the TVQ.

Reimbursing the debt

The government announced it will use $10 billion over the next 5 years to pay down the province’s debt –  $2 billion will be taken yearly from the Generations Fund, a fund established in 2006 specifically to fix the debt problem. Quebec’s gross debt is currently at $203 billion, or 51.9% of GDP. The government estimates that the debt-to-GDP ratio could drop below 50% by next year and reach a low of 45% by 2022-2023. It’s a curious commitment to make right before an election, given that it provides no tangible benefit to the average Quebecer. Still, it’s a laudable decision given Quebec’s current relative financial strength.

Public transport

The spending continued as the government committed $13 billion to transportation. Amongst other measures, spending will be channeled into two major projects in Montreal, and one in Quebec City. $3.9 billion will go towards extending the Montreal metro’s blue line. Quebec City’s strategic transportation network will receive approximately $3.3 billion.

Taxi industry bailout

Finance Minister Leitão announced a $250 million bailout to compensate tax permit holders for the reduction in the value of said permits. How this money will be spent is yet to be determined and will be the subject of industry consultations.

Electric vehicles

The government remains committed to its engagement of having 100,000 electric vehicles on the roads by 2020. Therefore, there is additional funding part of the Drive Green Program as well as a campaign to promote the use of electric vehicles in the province. In addition, a new innovative energy transition fund will be put in place called Fondaction.

Justice: massive IT infrastructure investment

The government announced a whopping $500 million to digitize the justice system. The plan includes $289 million to update technology. A framework was announced laying out procurement and implementation oversight for the plan to ensure that outside suppliers partner with the Minister of Justice to build internal expertise.

Entrepreneurship & venture capital 

The government committed $10 million over the next five years to create Réseau200, a new project geared towards bringing together entrepreneurs whose businesses have reached the same stage of development for coaching by peers in the business world. The government will also increase investments in Teralys Capital to of $61.5 million.

Artificial Intelligence: government reiterates support for SCALE AI

The budget provides $60 million to maximize the benefits of the SCALE supercluster project over the coming years. To date, SCALE AI has mobilized 118 industrial partners who have committed for projects totaling $700 million, primarily in Quebec. The government has worked diligently to make a Quebec a hub for the emerging AI sector.

Mining

The government committed $33 million for mining corporations to develop innovative technologies in order to be more competitive on the market, developing Northern Quebec further, and emphasizing social and environmental issues in the mining sector. The government will also extend from 4 to 6 years the amount of time a mining project can benefit from reduced hydroelectricity rates.

Culture

The government announced an 11% increase in spending on culture, climbing to $778 million. Beneficiaries will include museums, symphony orchestras, TV stations and festivals.
There are other issues in the government's long-term agenda. As always, HATLEY intends to keep you up to date throughout the year on important events affecting the Quebec political and business scene with the HATLEY Report.

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Tom Kott                          
Consultant
514-316-7082