Budget update: Quebec boosts aid payments, says economy is in 'stagnation'

Quebec Finance Minister Eric Girard delivered a sobering economic update on Tuesday, revising down the province's economic growth projections for 2024 and expressing concerns about what he termed an economic "stagnation" across Canada. Girard cited multiple challenges, including high inflation, rising interest rates, and global conflicts, making the next six months particularly challenging for Canadians.

"Inflation has come down, but it's still high, interest rates went from zero to five percent, we have two wars. It's very difficult right now," Girard remarked during the press conference held in Quebec City.

To alleviate the burden of the rising cost of living, the Quebec government announced measures to help its citizens. Tax credits and certain government benefits will see a substantial increase of 5.08 percent starting January 1, 2024, nearly double the 2.71 percent inflation rate forecasted for the upcoming year. For 2023, the government predicts an annual inflation rate of 4.63 percent.

While the Quebec economy contracted by 0.5 percent in the second quarter of 2023, Girard maintained his optimism, assuring the public that he does not anticipate a recession. However, he did lower his growth forecast for 2024, revising it down to 0.7 percent from the 1.4 percent projected in his March budget.

The economic challenges are not exclusive to Quebec. National data reveals that, in the seven-month period ending September 30, Canada experienced six months of either stagnant growth or economic contractions.

Girard pointed out that certain indicators, such as the labor market, consumer confidence, and the production of goods and services, remain stronger than expected in a recession scenario, but they are still insufficient to denote growth. This situation, he described as economic "stagnation."

In his update, Girard reported that Quebec government revenues for the current fiscal year would reach approximately $144.3 billion, which is roughly $800 million less than projected in the spring budget. Simultaneously, government spending is estimated to be around $147.4 billion, exceeding the spring budget by approximately $600 million. Quebec's operating deficit will exceed $3 billion, rising to over $6.1 billion after paying into a fund dedicated to reducing long-term debt.

While Girard has maintained his plan to balance the budget by the 2025-26 fiscal year, considering the legally mandated debt fund payments, the budget won't be balanced until the 2027-28 fiscal year.

The Opposition Liberals have criticized the Coalition Avenir Québec for measures like direct payments given to the majority of Quebec residents last year, arguing that these choices have contributed to the province's current economic situation.

Despite these challenges, the economic update also includes several key initiatives. It earmarks $1.8 billion over five years to build 8,000 social and affordable housing units, with half of the funding coming from the federal government. Of these, 500 units will be dedicated to addressing homelessness. Additionally, $124 million over five years has been allocated to combat homelessness, and $21 million in 2023-2024 will support food banks and food security programs, including school breakfasts.

Furthermore, the update allocates $400 million over five years to address the aftermath of the historic forest fires last summer, including funding for reforestation, assistance to affected communities, support for the forestry industry, and improvements to the province's forest fire fighting service.

Girard delivered this update just one day after public sector workers, including those in education, health, and social services, went on strike for several hours, marking the first in a series of scheduled strikes. Girard assured that the government's latest offer, which includes a salary increase of approximately 10.3 percent over five years and a one-time $1,000 payment, is within the budget. However, he cautioned that any additional spending on public sector workers would require borrowing.

In response, unions representing government workers argued that the government's financial constraints were the result of political choices, such as a tax cut last year and a $1.3 billion allocation in the economic update to renew an investment and innovation tax credit for businesses. Éric Gingras, the president of the Centrale des syndicats du Québec, stated that "the government is therefore in no position to talk about the limits of its ability to pay" in a press release.