Quebec budget predicts 4 years of deficits

The Quebec Liberal government on Thursday tabled a budget with a $3.9-billion deficit, suspending its own balanced-budget law in an attempt to protect the province's economy from slipping too far into a recession.

Finance Minister Monique Jrme-Forget presented a $66-billion budget for 2009-2010, adding Quebec to the growing list of provinces that are borrowing money to pay for basic services and economic stimulus measures.

Quebec's deficit, the first in a decade, represents 1.3 per cent of the province's gross domestic product.

Quebec will not only post a deficit this year, but likely for three more years, said the finance minister.

The deficits are expected to add $12 billion to the province's already heavy load of debt.

In order to return to balanced budget territory, the province plans to tighten government spending while digging into the pockets of Quebecers.

Not only will all user fees, except daycare, be indexed to inflation, but the Liberal government will do something it promised it wouldn't: raise taxes.

Beginning Jan. 1, 2011, when the finance minister hopes the recessionwill end,the government will add one per cent to the Quebec sales tax, bringing it up to 8.5 per cent.

"It's not a popular move. I'm not going to become popular with that, but it is a decision that is courageous and responsible," said Jrme-Forget.

The increase in user fees such as for licences issued by the province will come into effect at the same time.

Economy takes priority

The Quebec government is placing jobs and businesses front and centre in its economic stimulus plan.

The economic measures add up to $15 billion, with $3.4 billion of that for new measures not previously announced.

'This budget gives hope. It will enable Quebec to bounce back as soon and as high as possible once recovery begins.' Monique Jrme-Forget, Quebec finance minister

The new measures include a $500 million emergency fund for struggling companies and another $500 million to help laid-off workers retrain or upgrade their skills.

In an effort to raise capital for businesses, the government is teaming up with the FTQ Solidarity Fund, the investing arm of the province's labour federation, and the province's pension fund manager, the Caisse de dpt et placement du Qubec.

Economic Development Minister Raymond Bachand said the $825 million venture capital fund will give businesses what they are asking for.

"If we want to protect our jobs, companies need access to liquidities," said Bachand. "If companies dont have access to liquidities in credit, theres a major problem."

The government is also bringing back an old idea with a stock savings plan to promote private investment in Quebec-based businesses looking for capital. Individuals who invest in the stocks will be granted a tax deduction of 150 per cent until the end of 2010 and 100 per cent thereafter.

With additional funding for forestry, infrastructure and energy development, Jrme-Forget expects to be able to create 100,000 jobs in the upcoming years.

"This budget gives hope. It will enable Quebec to bounce back as soon and as high as possible once recovery begins," she said.

Opposition left wanting more

Opposition parties pounced on the size of the stimulus package, which they described as miniscule compared to strategies announced in the United States and England.

"What we have here is a mini-plan for the economy," said Parti Qubcois finance critic Franois Legault.

"This is our worst-case scenario. We have a large deficit and no plan to relaunch the economy."

The government should have invested more money in education to arm current and future workers with the skills they need to succeed, he said. The government introduced a modest increase to the education budget of 3.5 per cent ($490 million), with the money only going to address the high school dropout rate.

The Action Dmocratique du Qubec criticized the decision to increase the sales tax, which MNA Franois Bonnardel said will affectfamilies regardless of the finance minister's assurance that it will only be introduced after the economy rebounds.

"The tax increase is not a good decision," he said. "We don't see any way that the middle class [will] be protected."

'Making the best out of a bad situation'

Economists and other financial experts aren't sure the economic stimulus plan will produce major results.

Michael Tinkler, a management accountant,said the province has few resources and tools at its disposal to effectively ramp up the economy. Instead, he said, the $15 billion economic stimulus package includes money from private enterprise, other levels of government and investment funds.

"This is a budget that is making the best out of a bad situation," said Tinkler.

He wonders about a clause in the budget that refers to "other measures" that the government anticipates will help it return to zero-deficit status within five years. He remembers what it took to get Quebec out of a series of deficits in the 1990s: massive cuts to education and health.

"There is another shoe waiting to drop," said Tinkler.

The Liberal government holds 66 seats in the national assembly, a majority that allows it to avoid last year's tense situation in which the budget was only narrowly adopted by what was thena minority legislature.

The budget will go through several readings before a vote later this spring.