Quebec deficit higher than projected; government spending to be cut

QUEBEC – The new Quebec government is projecting a bigger-than-expected deficit in this year’s budget, a $2.35-billion shortfall the struggling province says would have been far worse without ambitious plans to cut spending.

Rookie Finance Minister Carlos Leitao tabled the 2014-15 budget Wednesday and said the billions of dollars in proposed spending cuts are absolutely necessary.

”This is a serious budget because it is a serious situation,” Leitao told reporters before introducing the document in the national assembly.

In his budget speech, he raised the spectre of Quebec having to face costly downgradings in its various credit ratings if the government did not proceed with sweeping measures to rein in spending.

”The time has come to finally tackle this problem before others force us to do,” he said.

The budget was the majority Liberal government’s first fiscal blueprint since Premier Philippe Couillard took power April 7. Its adoption in the legislature is a safe bet.

The Liberals missed the mark on their pledge to run a deficit of only $1.75 billion in 2014-15 — to match the previous Parti Quebecois government’s objective — by $600 million.

However, the Couillard government reiterated its promise to balance the books in 2015-16 without burdening Quebecers with significant tax increases or cutbacks to services like health care and education.

Leitao, an economist and star candidate in the spring election, said without taking action, the province would have been confronted by a $5.9-billion deficit this year and a $7.6-billion shortfall next year.

He said he was satisfied his department found a way to put the brakes on projected spending growth and keep it below the rate of incoming revenue. The budget projects expenditures to be chopped to 1.9 per cent this year, instead of 6.1 per cent.

Leitao blamed Quebec’s financial troubles on the fact spending has been structurally higher than revenue.

“The previous government dropped the ball on government spending,” Leitao, former chief economist for Laurentian Bank Securities, told reporters.

“To put that in motion in only five weeks, we had long nights … Given the magnitude of the task, I think we did what is credible.

“There’s no point in promising the moon and then not being able to deliver.”

The Liberal budgetary plan says $7.7 billion is needed over the next two years to balance the budget, $5.1 billion of which is slated to come from addressing Quebec’s ever-climbing government spending.

In 2014-15 alone, more than 90 per cent of the effort to address the grim outlook of public finances will come from reining in government spending with steps such as a hiring freeze in the public sector and reductions in corporate tax credits.

Leitao, who before entering politics was ranked as the world’s second-best economist by Bloomberg News, said the government plans to avoid introducing any new funding for infrastructure projects over the next decade.

The province also plans to rake in more cash by raising taxes on tobacco — $4 on a carton of 200 cigarettes — and some alcohol sales.

There will also be hikes in fees for the province’s signature $7-per-day child-care plan. They will climb to $7.30 on Oct. 1 and then be indexed according to the rate of growth in cost of program.

The budget announced plans to improve the St. Lawrence River’s position as a hub of martime transportation and to launch projects to further exploit Quebec’s forests and minerals. It calls for the revival of the previous Liberal government’s northern-development plan, known as the Plan Nord.

The Couillard government is also seeking to help Quebec’s small- and medium-sized businesses, such as reducing chopping the tax rate in half — to four per cent — for manufacturing operations.

PQ finance critic Nicolas Marceau, who tabled the province’s last fiscal plan in February, called Leitao’s document a “budget of broken promises.”

Marceau, whose budget did not go to vote before the election call, said the Liberals failed to live up to their campaign pledges to create jobs, build the economy and avoid introducing new fees for Quebecers.

Francoise David of the small, left-wing Quebec solidaire party called the Liberal budget “permanent austerity.” David said the hiring freeze would ensure that young women studying to become nurses and teachers won’t find jobs in the coming years.

Leitao’s document also lays out Quebec’s plans to ask for more money from Ottawa via federal transfers in health, social and equalization payments.

He said Quebec, like the other provinces, doesn’t agree with the Harper government’s unilateral decision to make changes to the system.

“All the provinces will work together to convince the federal government to review its transfer formula,” said Leitao, who added he didn’t think there was a fiscal imbalance in Canada.

“It’s not a Quebec-Ottawa battle.”

The budget document said Ottawa’s 2008 decision to impose caps on the equalization program has cost Quebec more than $8 billion since 2009-10. Meanwhile, Ottawa’s changes to health transfers will deprive the province of nearly $10 billion over the coming decade.

This was the sixth straight year the Quebec government tabled a deficit budget for the province, which is Canada’s most indebted.

Over the last 30 years, more than two-thirds of Quebec’s budgets have run shortfalls.

In his speech to the legislature, Leitao said he was convinced his department’s measures would churn out quick results.

“I am convinced that this program will help foster strong economic recovery.”

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