The province’s economy is currently doing better than many expected, so the Quebec government will have some wiggle room in drafting this year’s budget, set to be unveiled on Tuesday.
What does that mean? More Quebecers are employed with good jobs than some economists had forecast. Crucially, for Finance Minister Eric Girard’s budget math, that also means those people are paying more taxes and fewer people are relying on social safety net programs.
That is welcome news for a government that has foreshadowed both spending increases and tax relief in its upcoming budget — “having your cake and eating it too,” according to some economists and political analysts.
Quebec finance minister ‘disappointed’ with Ottawa’s funding proposal
Rosemary Barton Live speaks with Quebec’s finance minister, Eric Girard, about Ottawa’s health-care funding proposal. Girard says he is ‘disappointed’ with the $1 billion that has been allocated to Quebec, adding that the offer ‘will not make a difference.’
It’s a strategy economists usually warn against. When the economy is going well, they say, governments shouldn’t necessarily offer tax relief but should instead take advantage of increased tax revenues to pay down debt — which Quebec has a lot of, some of which is due to recent expensive COVID-19 and inflation relief plans.
But that isn’t what the budget is likely to show on Tuesday. As usual, the finance minister has been close-lipped about the contents of the documents, but Girard did say that the government will stick to the commitments it made during last year’s election campaign — which likely means more spending, not less, along with a tax cut that some are criticizing as untimely.
So, here’s what you can expect:
Lower taxes
One controversial promise that the CAQ has made is a pledge to cut taxes by one per cent for the two lowest tax brackets.
If the government comes through on that promise, which Girard has suggested it will, that would save a taxpayer earning $55,000 a year $378, but it will save higher-income earners even more.
During the election, Legault said Quebecers making $80,000 a year would save $630 in taxes per year.
It’s a proposal that has some economists raising their eyebrows.
Nearly 35 per cent of Quebec’s population will not earn enough income to benefit from the tax break according to l’Institut de recherche et d’informations socioéconomiques (IRIS).
“It would be an unfair tax cut because it would mainly favour taxpayers with higher incomes,” said Guillaume Hébert, a researcher with IRIS, in an interview.
The government has said the $2-billion measure would be paid for by the government reducing its payments to the Generations Fund, a rainy day fund.
That money, IRIS contends, would be better spent in the public sector, in the health or education system, for example.
The timing of the tax cuts, when the government is handling debt from COVID-19 relief measures and is promising to increase spending, is also causing concern.
“At some point, you want to make these promises, that’s fine,” said Moshe Lander, a senior lecturer in economics at Concordia University, “but it has to be accompanied by government spending cuts elsewhere or higher taxes, not lower taxes.”
But that isn’t what most observers expect.
Premier François Legault has often said Quebec taxes need to come down to be more in line with rates in other provinces. (Sylvain Roy Roussel/Radio-Canada)
Increasing spending
In the lead-up to the 2022 election, where the CAQ secured a second four-year mandate, François Legault’s party made lots of expensive promises — $29.6-billion worth.
Not all of those promises are expected to appear in this year’s budget, but spending increases are likely.
“I think that they will increase health-care spending quite significantly and I think education is a major priority,” said Daniel Béland, the director of the McGill Institute for the Study of Canada. “So it’s a government that likes to be popular, right? [Legault] doesn’t like to bring bad news.”
It’s a combination, Béland said, of tax reductions and spending increases that appears to makes more sense as a political decision than an economic one.
It’s also a combination that would lead to a greater budget deficit — which happens when the government is spending more on programs than it receives from taxes.
But that deficit, Lander predicts, will be lower than expected – possibly around the $5-billion mark. A lower deficit than expected, however, deserves no praise because it is coming because of economic prosperity that the government did not engineer, he said.
“When a government tries to take credit for that and says that, you know, the deficit is smaller, they don’t deserve a pat on the back,” said Lander.
The smaller deficit, however, will allow them to couch the budget in optimistic language and a commitment to get back to budgetary equilibrium at some point down the line, Lander predicts.
“They’re gonna create the magic act of smaller deficit than expected on a path to balancing budget while at the same time cutting taxes and raising spending.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
