Quebec is the first province to unveil a budget plan for the coming fiscal year.

BMO Nesbitt Burns says that Quebec’s challenge is to reconcile a much weaker revenue backdrop with an effort to stimulate growth, allow for increased spending on security, keep program spending on track, and still maintain a balanced budget.

The brokerage firm reports that the province now believes that provincial GDP growth will be just 1.1% this year, compared with the spring forecast of 2.7%. It’s a similar story for 2002, when GDP is projected to cool to 1.7% from the initial estimate of 2.6%. This downward revision is estimated to carve $1.8 billion from revenues in both the current fiscal year and next.

“To this point, the budget is balanced. However, Quebec also intends to introduce a $641 million “action plan” to stimulate growth. The plan is equal to about 0.3% of provincial GDP, and is dominated by $400 million for households, mostly aimed at low income households. The government will also increase the indexation rate for the tax system and will index social assistance benefits next year,” says BMO. Increased security measures are expected to cost $43 million over the next two years.

These costs are expected to be offset by stronger GDP growth arising from the stimulus measures-estimated to add 0.7% to GDP. “That may prove optimistic — we expect provincial GDP growth will struggle to reach 1% in 2002.”

CIBC World Markets Inc. says, “Despite a slowing economy, Quebec took advantage of funds set aside from an economic boom last year to finance needed economic stimulus, while keeping the budget balanced in 2001-02. Like Washington, Quebec is using fiscal policy to support the province’s economy, rather than risk exacerbating the downturn in a belt-tightening CIBC notes that the budget also announced the creation of La Financiere du Quebec, which will replace loan guarantees previously offered by a predecessor organization with a mix of both direct loans and loan guarantees to small and medium sized business and co-ops.

“Overall, Quebec has unveiled a reasonable plan to deal with the deepening slowdown. However, given the tremendous economic uncertainty now facing policymakers of all stripes, Quebec may yet need to revisit their plans over the next six months,” concludes BMO.