While inflation may be straining the pockets of ordinary Quebecers, it has done the opposite for a provincial government that has seen its projected deficit shrink by billions of dollars, according to a report released Monday ahead of the fall election campaign.
The government’s projected finances are “plausible” despite global economic uncertainty that threatens to cloud the upbeat outlook, said Auditor General Guylaine Leclerc, who was tasked with reviewing a pre-election financial report from Quebec’s finance minister.
Inflation, Leclerc said, “has a lot to do” with filling government coffers, thanks to rising tax revenues from wages and sales taxes.
“At the level of the (fiscal) year 2022-23, at the accounting level, we forecast a surplus,” he told a news conference in Quebec City.
Finance Minister Eric Girard’s report, also released Monday, showed Quebec would end the current fiscal year with an operating surplus of $1.7 billion; the government had forecast a deficit of about $3 billion in the March budget. However, Quebec law provides that certain payments must be made to reduce the provincial debt; therefore, the government estimates to end the fiscal year with a deficit of $729 million.
At a news conference following Leclerc’s report, Girard said Quebec’s economy continues to beat expectations and promised to cut personal income taxes if he is re-elected on Oct. 3. He said Quebecers have a high tax burden and pay four to five percent more taxes than other Canadians, on average.
“What we would like to do in a second term would be to reduce the gap between the personal income tax burden of Quebecers versus the rest of North America or Canada,” he said.
Girard said he did not anticipate a recession, but rather a slowdown in growth, from 3.4% in 2022 to 1.7% in 2023. Inflation is estimated at 6.5% for 2022 and 3.2% the following year, he added.
Personal income tax revenue, the state’s largest source of revenue, is expected to increase 5.2 percent from 2021-22 to 2022-23. Consumption tax revenue will total $27.3 billion in 2022-23, up 10.8 percent from 2021-2022.
With Girard’s promise to cut income taxes, the Avenir Quebec Coalition becomes the third party to promise significant tax cuts if elected, after the Quebec Liberal and Conservative parties. Girard did not specify how the province would fund the tax cuts, promising only that it would be done in an “orderly and responsible” manner that would not involve service cuts.
Meanwhile, Leclerc was tasked with determining whether the government’s financial forecasts, estimates and assumptions made ahead of the provincial elections in October were realistic. The purpose of Leclerc’s review is to ensure that political parties have accurate information on which to base their platforms and cannot expect to be caught off guard by an unexpected deficit or surplus after the election.
Leclerc concluded that the current government’s forecasts for this fiscal year and the next two are “plausible”, but added that the situation could change due to high levels of uncertainty.
“Skyscraping inflation, the war in Ukraine and the COVID-19 pandemic are creating a lot of uncertainty, which could cause actual results to differ materially from forecasts,” Leclerc said.
Girard’s report, he said, took into account the latest economic statistics, laws and forecasts, and also included a “margin of caution,” which Girard said amounted to about $2 billion per year over the next five years to help cover the unexpected.
Leclerc’s main criticism was that the government did not provide an “alternative scenario” detailing what would happen if some of the worst risks came to pass, which “would have been helpful”, he said.
Liberal financial critic Carlos Leitão acknowledged that “there was no longer a structural deficit” in Quebec thanks to a sharp increase in revenues, but criticized the Legault government for not doing more to help taxpayers cope with the rising cost of life.
Quebec solidarity legislature member Ruba Ghazal said the improvement in public finances is not something the government can boast about.
“If public finances are doing well, it is because life is more expensive for taxpayers,” he said.
– This report from The Canadian Press was first published on August 15, 2022.