Provincial Updates

November 07, 2023 | 14:51

Quebec FY23/24 Fiscal Update

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

The Province of Quebec is projecting a $1.8 billion deficit for FY23/24 (0.3% of GDP) on a public accounts basis, little changed from the 2023 budget estimate. In the medium-term fiscal plan, Quebec continues to target a return to surplus in FY25/26, after a smaller $678 million deficit in FY24/25. That path is also little changed from the spring outlook.

Revenues are tracking modestly higher, with the updated estimate now $1.3 billion above the budget plan thanks mostly to higher federal transfers. Total spending is tracking $2.4 billion higher, largely the result of some new measures announced in this update, but also some upward creep in debt service costs. The difference between the larger spending boost and the revenue increase is offset by a shrinking of the contingency reserve. So, while the margin for error in the fiscal is reduced given the carving down of the contingency, the overall near-term fiscal path is little changed.

New policy measures announced in this update total $1.6 billion for this fiscal year, rising to just over $3 billion per year by FY25/26. The most notable change is a 5.08% indexation of various parameters of the personal income tax system and various benefits for the 2024 tax year. This would include aspects like tax bracket levels, the basic personal amount, and family benefit allowances, among others. Note that this is not new in Quebec, but the large increase comes alongside still-high inflation (this year's index increase was 6.44%). Other measures include support for skills training, climate transition initiatives and a renewal of the investment and innovation tax credit.

This fiscal update is based on the assumption that Quebec's economic growth will slow to 0.6% in 2023 and remain subdued at 0.7% in 2024. The 2024 forecast is a notable downward revision from 1.4% expected in the 2023 budget plan (BMO is currently assuming growth of 0.7% and 0.4%, respectively, but we also carry a weaker outlook for all of Canada). While cyclical challenges like the adjustment to high interest rates will be felt in the province, we remain optimistic on Quebec's medium-term economic prospects.

Past economic momentum and little change in the budget plan leave net debt tracking downward as a share of the economy, albeit now very gradually. The net debt-to-GDP ratio is now pegged at 37.9% this fiscal year, down a tick from 38.0% in FY22/23, but two ticks higher than the budget assumption. While progress is flattening out, this is the lowest net debt-to-GDP ratio the province has seen since the mid-1990s. Total borrowing requirements are running lower than the budget plan, at $21.9 billion for FY23/24, down from $29.5 billion previously expected. The improvement comes alongside lower net financial requirements for the year, $2.2 billion of unexpected pre-financing, and a $2 billion increase in the amount of Quebec Treasury bills outstanding. As of this update, 85% of the borrowing program has been completed. Looking ahead, Quebec still sees chunky borrowing requirements of just under $30 billion in each of the next two fiscal years, as maturities peak.

The Bottom Line: Quebec's fiscal position remains solid heading into what could be a tough period for the economy. While new spending measures have chipped away much of the buffer that was in place, the overall fiscal outlook is little changed.