Carlos Leitão, Quebec’s finance minister, presented his budget update in late October. The budget included a larger than expected $2.2-billion surplus for the year ended March 31, 2016, and projections for continued budget surpluses in the next three fiscal years. But not everyone is happy.
The surplus actually was $3.6 billion, but Leitão announced the lower $2.2-billion figure after paying $1.4 billion into Quebec’s Generations Fund.
That fund, established in 2006 to offset the provincial debt, collects water and mining royalties, some customer revenue from Hydro-Québec, the government’s investment income ($514 million this year) and $500 million a year in alcohol taxes.
Plans call for payments into that fund of $2 billion for the current 2016-17 fiscal year, $2.45 billion the following fiscal year and $2.8 billion in 2018-19 as Quebec seeks to lower its debt-to-gross domestic product (GDP) ratio.
Generations Fund contributions earn about 8% per year. Leitão says the fund will reach $10 billion next year and $23 billion by 2021.
In 2015-16, thanks to low interest rates, the $10 billion that Quebec paid in debt servicing allowed the province to pay down its debt by $610 million, bringing Quebec’s gross debt to 53.8% of Quebec’s GDP.
The minister’s goal is a debt-to-GDP ratio of 45% by 2026, in the name of “intergenerational equity,” to ensure future generations are less debt-burdened.
Leitão notes that Quebecers are Canada’s most indebted citizens. According to the Fraser Institute, Quebecers’ debt, adding provincial and federal debt burdens, is $22,769 per capita, compared with the next highest debt burden of $21,629 for Ontario residents. “By 2030 or 2040, [younger Quebecers] will decide what they want to do. But, at that time, we will have left them something other than a huge public debt,” Leitão told reporters.
Balancing Quebec’s budget and using some of the surplus to pay down the provincial debt allowed Leitão to announce $510 million in additional funding for health, education and regional development, as well as $400 million more for infrastructure spending on visible projects such as sports facilities and renovation of Quebec’s crumbling public schools.
And he announced a modest, $253-million tax cut, abolishing Quebec’s health tax of up to $1,000 on taxable incomes above $135,060 two years earlier than planned.
Pundits and Opposition parties view Leitão givebacks as politically motivated.
The Parti Québécois objects that Leitão generated surpluses through spending cuts that have hurt vulnerable Quebecers, while the Coalition Avenir Québec says Leitão is not respecting the Liberal campaign promise of greater tax cuts.
“We had to act responsibly,” Leitão says. “We said we were going to restore balance to public finances so we could make the necessary decisions.”
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