The Legault government wants to “modernize” the Balanced Budget Act, which became impractical during a period of recession.
The Balanced Budget Act was adopted by the government of Lucien Bouchard in 1996 in order to redress Quebec’s financial situation. It provides that the Ministry of Finance determines a plan to return to budget balance over a five-year horizon when the government records a deficit of at least 1 billion.
However, the provisions of the Law became impractical during a period of recession, when the economic consensus considers that it is normal, even necessary, to resort to red ink. In the past, successive governments in the National Assembly were forced to suspend the Balanced Budget Act during a recession because the five-year timetable for posting a surplus was too tight. This is also what Quebec had to do during the last recession linked to the pandemic.
“As soon as there is an economic slowdown, we must suspend the Act,” explained Finance Minister Eric Girard on Friday during a press scrum on the sidelines of his speech to the Council on International Relations of Montreal (CORIM ). […] The Law, as it is formulated today, encourages it to be suspended too frequently. »
During his speech, Mr. Girard mentioned that Quebec intended to “modernize” the Balanced Budget Act. The trigger threshold of 1 billion no longer reflects the economic and budgetary situation of Quebec, according to him.
“A billion with Quebec’s nominal GDP reaching 500 billion today, with the fact that a deficit of 1 billion is really a surplus of 1.4 billion because we contribute 2.4 billion to the Generations Fund. »
The fact that the Balanced Budget Act did not take into account the payment to the Generations Fund was not unanimous.
Civil society groups and left-wing think tanks considered this provision too harsh, which underestimated the government’s fiscal room to finance other priorities such as public services or the fight against climate change.
Business associations and economists saw it instead as a sort of safeguard that ensured not only that the government limited periods of deficit, but also that it reduced the burden of the debt in the long term.
The question was debated while the previous targets were reached more quickly than initially anticipated. In 2010, Quebec set itself the objective of reducing the weight of gross debt to 45% of GDP for the 2025-2026 financial year.
When the most recent budget was presented last March, net debt was 37.4% of GDP.
With the relaxation of the Balanced Budget Act to take into account the accounting deficit, Quebec will not set aside the objective of reducing the long-term debt, assures Mr. Girard. “We will also reduce the debt, which is at 38% net debt in relation to GDP, we will bring it to 28% over 15 years. If we hadn’t lowered taxes, we would have done it in 10 years. »