Quebec Finance Minister Eric Girard is betting that big spending increases in the budget he tabled Tuesday will stimulate the provincial economy enough to ward off any economic damage resulting from the novel coronavirus.
The Coalition Avenir Quebec government’s second budget projects a $2.7-billion surplus, increases program spending by 5.1% over the previous fiscal year and includes billions more in borrowed funds to finance big-ticket infrastructure projects such as new public transit.
Girard told reporters government “has a role to play to stimulate the economy” amid disruptions in global supply chains and weakening private demand for products and services due to the global spread of COVID-19.
“It’s possible the virus has an impact on consumer and business confidence,” he said. But, he added, the spending increases are “coming at the right time.”
Girard acknowledged that the effects of the virus on the global economy are evolving quickly. As of Saturday, he said, his department estimated the virus could cause global economic growth to fall by half a percentage point this year.
“When we look at the sensitivity of the Quebec economy to the world economy, it could correspond to about half, so 0.25%,” he said. “All this is manageable.”
Moreover, the 2020-21 budget provides a surplus of $2.7 billion that could be used to cushion any unforeseen blows from the virus, Girard said.
Liberal finance critic Carlos Leitao called the lack of specific funding to address the effects of the coronavirus “hazardous.” He said it’s been clear since the beginning of the year that the global, Canadian and Quebec economies are slowing.
On Monday, he had called for a contingency fund of roughly $1 billion to deal with economic shocks caused by the virus. “There is zero,” Leitao said. “Absolutely nothing, no provision for eventualities. I think it’s extremely hazardous to make a budget like that in this economic climate.”
Girard, however, said, “We are ready.”
Health and education program spending will grow significantly in 2020-21, by 5.3% and 4.5% respectively. Girard said if the Health Department needs more money for coronavirus-related spending, “we have the capacity to deliver.”
The budget also includes an increase of $15.1 billion in infrastructure spending over the next 10 years, bringing the total to $130.5 billion.
That money, which will be borrowed primarily through the sale of government bonds, is earmarked to fund new schools, senior centres and major public transit projects. The budget projects the province borrowing about $14 billion for capital spending in 2020-21 and about $27 billion a year after that, until 2024-25.
Girard said another factor giving him confidence Quebec can weather the expected storm is the fact the province’s economic fundamentals are so strong.
“It’s important to understand where we are starting from,” he said before tabling his budget in the legislature. “The foundations of the Quebec economy are extremely solid and the performance of the Quebec economy is really in a good position.”
GDP grew by 2.8% in 2019, up a full percentage point from what Girard had forecast this time last year. He estimates GDP growth in 2020 will be 2.0%.
Quebec projects its revenues will grow 2.8% in fiscal 2020-21, to roughly $121.3 billion, and its expenditures will be $118.6 billion during the same period, leaving a $2.7 billion surplus that will be deposited into a special fund created to pay down debt.
And while the province says its gross GDP-to-debt ratio has declined to 43%, the government is still significantly in debt, by close to $197.7 billion. The province’s projected debt servicing costs for 2020-21 are $8.3 billion.
Despite higher revenues and stronger GDP, the government budgeted only modest tax cuts in the form of school tax reductions. The measure amounts to roughly $180 million in 2020-21.
With a stylized tree on the cover of the budget’s printed version, the government framed it as focused on the environment, and it budgeted $6.2 billion over six years to reduce greenhouse gas emissions. Most of that money is projected to come from revenues collected by businesses from the carbon market in which it participates with California. The new government money equals $2.1 billion over the same period.
Just like their government, Quebecers are making more money and spending more, the budget shows. Girard projects the province will collect 5.8% more in income taxes this fiscal year and 3.8% more in consumption taxes.
The budget says 77,700 jobs were created in 2019, and the unemployment rate was 5.1%.