Green light to a green budget

The budget at a glance

• Revenues: $121.3B (+2,8%)
• Expenses: $118.6B (+5,1%)
• Surplus: $4.5B (before payment to Generations Fund)
• Payment to Generations Fund: $2.6B
• Gross debt: $197.7B or 43% of GDP
• Net debt: $171.7B or 37.3% of GDP
• Economic growth: 2.0% in 2020 and 1.5% in 2021
• Growth in program expenditures: 4.4%
• Infrastructure investments: $15.1B more than the 2019-2028 QIP (Quebec Infrastructure Plan), raising its total to $130B.

Quebec is spending billions and its surpluses are growing, but the stock markets and economies are suffering from the coronavirus. The Legault government hopes the State plays its role as “stabilizer.” After a first budget bulging in electoral measures and promises, Finance Minister Éric Girard’s second budget was far more pointedsober with measures addressing two priorities: the environment and vulnerable groups.

Socking away big surpluses is itself great economic news. However, it may conflict politically with the Coalition Avenir Québec’s original philosophy of making the responsible management of public finances its political cornerstone. To reduce surpluses and everyone’s expectations, and to mitigate union demands, the CAQ had to spend more than it would have liked. Expenses are growing nearly twice as fast as revenue.

This budget confirms the government’s will to go green and “make the fight against climate change an opportunity for economic development.” The government is budgeting for its upcoming Plan for a Green Economy ($6.2B between now and 2026), with $1.3B to promote the decarbonisation of companies.

Another budget highlight is the ballooning the Quebec Infrastructure Plan (QIP) that’s shot up from $100B to $130B in less than two years. Clearly, Quebec intends to stimulate its economy at a time when economic uncertainty reigns and storm clouds are on the horizon.

In addition to the Quebec City tramway, QIP introduces five mass transit projects: Gatineau, Montreal, Longueuil (Taschereau Boulevard, yellow line) and the extension of the light rail network to Laval and Chambly. The CAQ foresees mass transit investments ($43.8B) that would ultimately exceed those for upgrading the road network ($42.5B).

The budget also devotes large amounts to society’s most vulnerable: youth protection ($450M/five years), mental health ($260M/five years), handicapped children ($125M/five years), female victims of conjugal violence, ($181M/five years), 900 hospital beds in CHSLDs (residential and long-term care centres; $140M/two years), tax credit for informal caregivers ($532M/five years), the well-being of Aboriginal communities ($200M/five years).

The government presented few new initiatives in health and education. It focused on enhancing existing programs and entering previously announced ones into the provincial ledger. Due to system costs, the two biggest ministries are inheriting the lion’s share of reinvestment (85% of the growth in program expenses). The school network will get new pre-kindergarten classrooms for 4-year-olds and new specialized classes, which will increase the pressure to build new schools. Health-wise, the government is putting new beds in CHSLDs, hiring more people for better home healthcare and improving front-line services.

Companies will enjoy a new tax credit for investment and innovation (C3i) and an extended tax holiday for major projects. While the Finance Minister assured that the Quebec economy is strong enough to face a global slowdown and the turbulence ahead, he nevertheless deems it necessary to implement new incentives.

Taxpayers expecting a reduced tax burden will be disappointed. Aside from the $182 million serving as an additional amount to achieve a uniform tax rate, the budget doesn’t provide for any reductions. It also does not contain hikes in tariffs and tax rates.

To summarize, this budget will enable the Legault government to claim a leadership role in what had been its Achilles Heel: the environment. By making the environment its centerpiece and keeping the growth in expenses to 4.4%, the budget is more in line with the Liberal or PQ tradition.

In its first budget, the CAQ wished to leave its mark on its intended trajectory for the Quebec state. This year, it changed its look since it had already largely financed and carried out its main electoral promises thanks to the financial flexibility it inherited when it assumed power.

This government will continue to impose its political agenda, unless an economic slowdown forces it to change its plans.

To continue the discussion and explore business opportunities arising from these measures, we invite you to contact a member of the NATIONAL team.

Main measures

Fight against climate change: $6.7B over 6 years

• Upcoming proposal for the Plan for a Green Economy
• Six electrical infrastructure projects in the Quebec 2020-2030 Infrastructure Plan (PQI): Quebec City, Montreal, Longueuil, Gatineau, Laval and Chambly ($15.8B)
• Promote decarbonisation of companies in the industrial sector ($1.3B)
• Enhance Roulez vert ($1.4B over six years) and Chauffez vert programs
• $20M to modernize sorting centres and $10M to promote the collection of organic matter

Education: $1.5B in additional investments

• $136M to create 350 new pre-K classes for 4-year-olds
• 150 special new classes for gifted and for struggling students
• Creation of future niches in AI and technological innovation
• The PQI 2020-2030 provides $19.1B for the construction and renovation of infrastructure in education and higher education.

Health: Investments in continuity

• Hire nurses and other professionals
• Expansion of services offered by pharmacists and specialized nurse practitioners
• Increased budget for mental healthcare
• Cancerology: coverage of CAR-T-cell therapy treatments
• 900 new beds in CHSLDs

Digital transformation

• Promise to create a digital identity for all citizens
• Upcoming unveiling of government’s cybersecurity policy
• Establishment of Governmental Cyberdefence Centre
• Confirmation of deployment of Infrastructures technologiques Québec and the Centre d’acquisitions gouvernementales on June 1, 2020

Budgetary and tax measures for companies

• Creation of the tax credit for investment and innovation (C3i) that will enable companies to modernize their equipment and acquire technological solutions ($526M over five years)
• Extended tax holiday for major investment projects
• Introduction of the synergy capital tax credit incentivizing established companies to invest in the share capital of Quebec SMEs
• Introduction of incentives to bring innovations to market (DICI) ($92M over five years)

Budgetary and tax measures for individuals

• The government will reduce school tax rates as of July 1, 2020, to obtain a uniform rate. Projected savings of $1.2 bn over five years.

Energy and regional development

• The government will support projects for renewable natural gas production (biomethane) and connecting facilities ($70M over three years)
• Implementation of the Tourist Industry Growth Strategy 2020-2025 ($304M over six years)

Transportation and road network

• Additional $2.7B for the road network in the PQI 2020-2030
• Additional $3.3B for mass transit in the PQI 2020-2030
• Projected balance between investments in mass transit and the road network by 2030, constituting a major paradigm shift for Quebec

Culture

• To score points with the cultural sector, the government announced $457M in additional expenses within the next six years
• Most of this will serve to promote and export Quebec culture
• Enhancement in implementation of additional cultural infrastructures in remote regions ($222M in the PQI)

Next steps

• Budget debate (25 hours)
• Study of budgetary appropriations in parliamentary committees (200 hours)
• Adoption (sometime in May)