Finance minister delays target to balance books by two years
Quebec, Canada’s second-largest province, expects to have higher budget deficits for years to come as the economy slows and wages rise for public sector employees.
Finance Minister Eric Girard delayed his target to balance the books by two years, to the fiscal year that ends in 2030, in budget documents released Thursday. It’s a change of fortune for a government that one year ago announced income-tax cuts and said budget shortfalls would rapidly shrink to almost nothing.
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This time, Quebec’s fiscal forecast paints a darker picture. The government sees a deficit of $11 billion for the fiscal year that begins on April 1, $8 billion higher than it expected only four months ago. It’s the third large Canadian province to release a budget in recent weeks, and in every case there has been a notable deterioration in government finances.
To pay for it, Quebec will need to tap the bond market aggressively. The government’s projected financing needs for the coming year are $36.5 billion, a 70 per cent increase from the current year. The figure includes money needed to repay maturing debt.
This is the sixth budget for Girard, a former treasurer of National Bank of Canada, who was re-elected in 2022 as part of a landslide win for Premier Francois Legault and the Coalition Avenir Quebec party, which has since lost ground to the separatist Parti Quebecois in opinion polls. Legault’s nationalist government has sought to attract more investment to the French-speaking province of nine million people, notably in the electric-vehicle supply chain, and to reduce the wealth gap with Ontario, its larger, richer neighbour.
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“It is a challenging and responsible budget in a difficult economic context,” Girard said during a press conference in Quebec City. He announced measures to generate billions in revenue and savings over the next five years — reducing tax breaks for technology companies, hiking taxes on tobacco and conducting a major review of government expenses. “The return to a balance will necessitate real gestures, but it’s feasible.”
Quebec is in the throes of an economic slowdown. The province, while blessed with an unemployment rate that’s below the national average, is expected to grow just 0.6 per cent this year and 1.6 per cent in 2025, according to government forecasts.
It has also been hurt by dry weather. Hydro-Quebec, a government-owned utility that exports electricity to the U.S. market, has been grappling with lower water levels in reservoirs, leading to a $1.5 billion shortfall in revenue.
At the end of last year, the government reached an agreement with 600,000 public workers, including teachers, that led to wage increases of 17.4 per cent over five years. The new contracts, and others that are still being negotiated, will add more than $3 billion annually to costs, according to government estimates.
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Over the next three fiscal years, deficits are expected to total more than $23 billion, up about $18 billion from projections in November. The figures include contingency reserves and billions in contributions to the Generations Fund, a reserve fund that’s dedicated to future debt payments and managed by the Caisse de Depot et Placement du Quebec. The figures could change, of course, if economic growth comes in faster than the government’s long-term forecast.
Girard said the government must boost the average annual growth rate of revenue from 3.3 per cent to 4.4 per cent, while maintaining spending growth at 2.9 per cent, to reach a balanced budget.
Quebec’s finances had improved significantly until the pandemic, helped by strong universities and healthy financial and technology sectors, and budget changes brought in by the previous Quebec Liberal Party government. It remains one of the highest-ranked Canadian provinces with a credit rating of AA- by S&P Global Ratings. Its net-debt-to-GDP ratio, currently 39 per cent, is expected to rise in the short term, but the government promises to reduce it to 30 per cent by 2038.
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Girard announced about $100 million over five years to support two of Quebec’s strategic industries, aerospace and aluminum, but made few changes to business taxes or incentives. “Most corporations can therefore expect their tax position to remain similar for the upcoming year, except for the IT sector where there are some losses,” Kimrang Te, a fiscal expert with Ernst & Young LLP, said in an interview.
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The new deficits show “there is no plan to the return to a balanced budget,” said Frederic Beauchemin, a lawmaker from the opposition Liberal Party who used to be a banker at Bank of Nova Scotia. “The CAQ’s strategy is to wait for the Bank of Canada to lower rates. It’s a government that’s losing control.”
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OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
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TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
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