Provincial Budgets

March 18, 2026 | 18:37

Quebec (FY26/27) — Downward Deficit Trajectory

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 $6.3 billion deficit in FY26/27, before transfers to the Generations Fund. That weighs in at a moderate 0.9% of GDP, and follows a $7.7 billion shortfall now expected for FY25/26. The latter has improved from more than $11 billion originally estimated, mostly on the back of stronger revenues. Broadly, the entire fiscal plan is sporting a shallower deficit profile through 2030, which is a positive shift for a province that had been persistently revising in the direction of deeper and longer deficits.

Notably, this budget is based on the assumption that the current tariff regime is unchanged going forward, which is noteworthy given that Quebec has arguably been the hardest hit by sectoral duties. At the same time, a contingency of $2 billion is built into FY26/27, and remains at $1.5 billion through the forecast horizon, although there is still a $2.3 billion "gap to be bridged" in the plan by FY28/29. A return to balance is expected by F29/30, but deficits in the interim remain well contained as a share of GDP.

This budget includes $2.1 billion in net new policy announcements for FY26/27, mostly through incremental new funding spread across a number of priority areas such as health care; converting non-subsidized childcare spaces; capping school tax growth at 3%; and adding to infrastructure spending. Unlike past pre-election fiscal plans, there is no major new transfer to Quebecers, although the next leader has some modest wiggle room in the budget plan.

Total revenue is projected to rise a solid 3.7% to $166.5 billion in FY26/27. That comes on the back of a 5.1% increase in federal transfers and a 3.4% gain in own-source revenues. On the latter, personal income tax, sales tax and Government enterprise revenue (e.g., Hydro Quebec) post solid gains. The budget is built on reasonably conservative economic growth assumptions, which assume status quo on trade policy.

Real GDP growth is pegged at 1.1% this year before accelerating to 1.4% in 2027—the latter would be about in line with potential growth in the province. BMO Economics currently sees 0.5% growth this year, but a firmer rebound in 2027. We believe Quebec is particularly vulnerable to the trade war, especially in manufacturing activity, with large sectoral tariffs (e.g., aluminum) adding downside risk. At the same time, geopolitical uncertainty and the surge in oil prices will impact Central Canada harder than other regions.

Meantime, total spending is projected to rise 1.5% to $170.8 billion in FY26/27. Program spending growth runs at 1.6%, but the subdued pace follows a 4.5% jump in FY25/26. Debt service costs are expected to step up again to $10.3 billion, and top $12 billion by 2030. Through the forecast horizon, program spending growth will average 1.9% per year through FY30/31.

The fiscal outlook builds in transfers to the Generations Fund for debt reduction. This fiscal year's transfer will total $2.3 billion, and transfers will grow gradually through the forecast horizon. Meantime, Quebec will draw $2.5 billion from the fund this year to pay down debt (or, in practice, reduce borrowing requirements).

Total borrowing requirements are estimated at $26.2 billion for FY26/27, which is reduced by a hefty $9.3 billion pre-borrowing in the fiscal year just ending. Maturities make up $14.4 billion of that total. Looking ahead, borrowing remains robust through the fiscal plan, averaging a steady $31 billion per year through 2030 alongside ongoing (although shrinking) deficits, firm capital spending and steadily increasing maturities.

Net debt will total $260 billion by fiscal year-end, or 38.9% of GDP. That's little changed from 38.8% in the prior fiscal year, but the whole profile has been revised down from a year ago. At that time, net debt-to-GDP was tracking at 41.5% for FY26/27, but meaningful upward nominal GDP revisions have helped pull it back down.

The Bottom Line: Quebec's economy is in a challenging spot to be sure, but this budget lays out better deficit and net debt profiles, while holding back on major pre-election outlays. This from a province that has, in recent years, been consistently seeing its fiscal outlook weaken.