Balanced budget out of reach for Quebec without further spending reductions

Projections indicate that Quebec will be $800 million short of balanced budget in 2016

OTTAWA, June 2, 2014 /CNW/ - The Quebec government is unlikely to balance its budget in 2015-16 without additional spending restraint beyond that already planned, according to Quebec Fiscal Snapshot: A Challenging Road Ahead, released today by The Conference Board of Canada.

As the new provincial government prepares to release its first budget this week, the Conference Board's analysis indicates that deficit elimination will involve restraining the growth of health costs and reducing spending on all areas except health and education.

"Overall, our projections suggest that the government will fall approximately $800 million short of balancing its books in 2015-16, even if it does manage to achieve the spending targets laid out in the February budget," said Pedro Antunes, Deputy Chief Economist. "It is safe to say that Quebec is in for a challenging fiscal ride."

HIGHLIGHTS

• Quebec's economy will continue to underperform many other provinces in Canada.
  
• Revenues are likely to be weaker over the next two years than projected in the previous budget.
  
• Health care spending targets will be difficult to achieve without reforms in the system to increase efficiency and productivity.
  
  

While Quebec's economy faces some major challenges, the outlook for growth in the next two years is a bit brighter than it has been. Still, with annual growth expected to average just 2 per cent in 2014 and 2015, Quebec's economy will continue to underperform many other provinces in Canada. The Conference Board of Canada's "How Canada Performs: Economy" analysis recently gave the province a "C" grade on its economic performance in 2013.

Based on the latest Conference Board forecasts of economic growth, Quebec's  revenues (not including federal transfer payments) are likely to be significantly weaker over the next two years than the estimates contained in the Parti Quebecois' February budget.

Growth in nominal gross domestic product (which serves as the most general measure of the provincial tax base) is projected to average 3.5 per cent over the next two years, down from the budget's projection of 3.7 per cent. This estimate translates into a $500 million revenue reduction in each of 2014-15 and 2015-16 fiscal years.

While Quebec has done a better job than most other provinces of keeping its health care costs down, continuing this trend into the future will be even more challenging. Quebec's health care spending is the lowest per capita among the provinces, and is even lower when Quebec's older population is taken into account.

The February budget committed to restrain in health care spending to growth of 3.8 per cent in 2013-14 and 3 per cent in 2014-15. However, the Conference Board estimates that, based on a projection of underlying demand and an aging population, health care spending would have to actually grow at an average pace of 3.9 per cent over the same period just to keep up with inflation and demographic change.

Unless there is transformation of the health care system to further increase efficiency and productivity, spending growth targets will be difficult to achieve without substantially affecting the quality of care.

The Conference Board and HEC Montréal have launched the Institut du Quebec to examine the challenges facing Quebec and offer ideas and recommendations based on new analysis. The first study of l'Institut du Quebec, Demographic Time Bomb and Public Finances: Toward a Sustainable Social Contract, recommended that the province adopt reforms aimed at constraining growth in health spending.

The government will also have to make significant cuts to program spending outside of health care and education. Given higher-than-budgeted expenditures in 2013-14, the Conference Board estimates that Quebec will have to cut overall spending by 3.6 per cent in 2014-15 to achieve budget targets. This means annual reductions of 4.1 per cent in 2015-16 and 4.3 per cent in 2016-17 would be required for spending outside of health and education. Spending restraint of this nature would allow the government to balance the books by 2016-17.

SOURCE: Conference Board of Canada

Yvonne Squires, Media Relations, Tel.: [phone] ext. 221
E-mail: [email protected]