Quebec is firmly holding to its commitment to have a balanced budget by 2013–14 (four fiscal years before Ontario would do so under its current plan). The provincial net debt now stands at just over $150 billion. That is equal to 50.1 per cent of GDP—a level well above all other provinces. Looking ahead, Quebec, like all provinces, faces an aging population, and that will surely drive up health-care costs. Quebec’s problem is compounded by declining growth in the size of its working-age population, thereby reducing its capacity to generate additional revenues. By way of comparison, Ontario, which faces a similar fiscal situation, has strong growth in its working-age population. Average annual program spending increases of 5.9 per cent over the last four years are clearly unsustainable.
Last year’s budget acknowledged the pressing need to control spending and raise revenues. An additional increase to the sales tax rate, a new health-care contribution, and reduced spending growth were introduced in Budget 2010. While the 2011 budget holds the same vision, the focus is on limiting budgetary spending growth. The government is sensitive to the fact that Quebecers already pay the highest provincial taxes in the country.
With its older and aging population, Quebec’s greatest fiscal challenge is controlling its spending on health care. In 2010–11, health care made up 47.5 per cent of all program spending. The proportion of people over the age of 65 is expected to reach 19.9 per cent by 2020, up from 15.7 per cent in 2011. A new tax credit worth up to $1,500 per older worker is intended to encourage those over the age of 65 to keep working. The total cost of the measure is estimated at $120 million per year. In addition, the Quebec government plans to fund its health-care system by relying on the newly created FINESSS1 fund, which is bankrolled by the health contributions that began on July 1, 2010, and that will progressively rise over the next two years. Health-care spending is now forecast to grow 5 per cent annually over the budget forecast, more in line with historic trends and better reflecting the demographic pressures.
With health-care spending continuing to rise rapidly, aggressive expenditure management in other departments will be needed. In an effort to control education spending, beginning in the fall of 2012, post-secondary students (or their parents) will have to open their wallets a little wider. The government will increase tuition by $325 per year over five years. Still, tuition fees will remain well below the Canadian average. (See chart.) The government is also calling on its major public bodies, including Hydro-Québec and Loto-Québec, to cut spending and find efficiency gains. Despite the need for additional revenues, the new budget announced only minor tax measures—a small increase in pension contributions and a change to the shale gas tax regime. To increase revenues without directly increasing taxes, the government plans to fight tax evasion, eventually hoping to recuperate $1.2 billion over the medium term.
Overall, planned program spending growth will be limited to 2.4 per cent in 2011–12 and 1.4 per cent in 2012–13, and revenues are expected to benefit from a recovering world economy. Achieving the goal of a balanced budget in 2013–14 will be challenging, however. This latest budget still includes $1.7 billion in undefined savings and new revenue measures, and the cuts to departmental budgets other than health care in 2012–13 and 2013–14 are likely to affect the level of services provided to the voting public.