The Quebec government is banking on a royalty bonanza from its natural-resources sector to help Canada’s most indebted province begin its long climb out of the red.
In releasing its 2012-13 budget Tuesday, Quebec revealed that its path to prosperity hinges on whether it can cash in on its abundance of minerals, forests and hydroelectricity.
The document calls for a $1.5-billion deficit in 2012-13, but says the government remains on track to fulfil its long-held pledge to balance the budget by 2013-14.
The budget, possibly the last for an unpopular Premier Jean Charest before the next election, also tries to strike a positive populist tone for voters: no new tax hikes or user fees.
In the next election — which must be called before the end of 2013 — Charest will likely portray himself as a sound economic manager, while at the same time hammering away at the uncertainty of sovereignty.
While this budget attempts to highlight economic improvements in Quebec under his watch, it also acknowledges the province remains Canada’s most heavily indebted. A year ago, Quebec had a gross debt of $173 billion, which represented 54.3% of gross domestic product.
But Charest’s Liberals predict things are turning around.
The party is counting on the promise it sees in the province’s natural resources sector and, in particular, the expansion of the province’s mining industry under Quebec’s sweeping northern development plan.
“We’re building the future and taking all the opportunities that lie before us,” Finance Minister Raymond Bachand said in Quebec City before tabling the budget in the legislature.
The government expects the mining sector alone to grow nearly 10-fold over a half-dozen years — from an average of $42 million in royalties per year between 2006-07 and 2009-10 to $415 million in 2016-17.
Bachand estimates that existing mining operations — and those currently being built — will funnel $4 billion in royalties into public coffers over the next 10 years.
Even though some mines are still being constructed, he’s confident his forecast is a reliable one.
“In finance, we usually don’t count our eggs before they’re hatched,” Bachand said.
“Of course, if the hen is there, the eggs are going to be laid tomorrow.”
He said cash from the province’s natural-resources sectors has already started to flow. Bachand predicted total royalties in 2011-12 to hit nearly $1.2 billion, and climb to $1.5 billion by 2016-17.
The province even wants to get in on some of the anticipated action.
Bachand’s budget announced the creation of a new government branch that will invest public money in mining, oil and gas initiatives. He said it will eventually manage an equity portfolio of up to $1.2 billion.
He added that a team of financial experts will ensure the government makes only the soundest investments.
“We want also to have a share, and invest in some cases where the risk is not too high, in the mining and oil companies,” said Bachand.
Other budget highlights include:
- a deduction of 10% in payroll tax for workers 65 and over, as of 2013;
- $1.3 billion in new capital for Quebec companies;
- a new voluntary retirement savings initiative aimed at providing two million Quebecers with access to private pension plans;
- more assistance to allow senior citizens to stay at home;
- and a projected surplus of $2.5 billion 2016-17.
The Opposition Parti Quebecois said the provincial royalties from natural resources aren’t high enough.
“The government is very timid,” said PQ finance critic Nicolas Marceau, adding the stay-the-course budget makes it clear the Liberals are preparing for an election.
Francois Legault, head of the Coalition for Quebec’s Future, slammed the Liberals for not doing enough to reduce spending and attacked their record on the debt.
“We really are using the credit card of our children,” said Legault, a former PQ minister who founded the right-leaning party a few months ago.
One controversial government strategy to increase revenue, which has dogged the Liberals for months, was not altered in their budget despite mounting pressure.
The government stood firm on its intention to hike tuition fees for university, a plan that has angered students across Quebec and triggered tens of thousands of the province’s youth to take to the streets in protest.
Instead, the major focus of the budget — the northern development plan, or Plan Nord — is aimed in part at helping establish Charest’s political legacy.
Over the last year, Charest has travelled to different corners of the world to promote the sweeping, multibillion-dollar initiative.
His government expects the Plan Nord to pump $14 billion back to the province over 25 years and create some 20,000 jobs.
Charest, who will travel to Brazil next month, has courted potential investors by portraying Quebec as a stable place to invest.