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Quebec loosens the purse strings after two years of austerity

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QUEBEC — Say goodbye to that expensive health services contribution tax. Say hello to new spending — a total of $510 million — in health, education and regional development.

But in tabling what he called a good news economic update Tuesday, Finance Minister Carlos Leitão faced questions about whether all the sacrifices needed to get Quebec’s books in order were worth it.

And now that Quebec has emerged from the era of deficits to boast a $2.2-billion surplus and the first real reduction in the total debt since the 1950s, when do the tax cuts the Liberals promised in the last election kick in?

The answer is the elimination of the health services tax on Jan. 1, 2017 — a decision that will mean $300 more in the pockets of families with a total income of $70,000 a year — is as far as Quebec can go for now.

Instead, with a general election just ahead in 2018 and the bad optics of the austerity agenda lingering, the focus is on repairing the damage and the battered Liberal image.

“I won’t deny it (the spending reductions) took a lot of effort,” a candid Leitão said at a news conference tabling his update. “And it was collective.”

He made his priorities clear.

“We will not reduce taxes to the detriment of services. We will not have a massive tax cut which would lead us back into deficit. We just cannot do that.”

The opposition pounced, describing the new money as a cynical electoral exercise.

“While we neglect the hygiene of our seniors in assisted living and we ask them to eat instant mashed potatoes, the government announces its surpluses will be used to finance electoral candy,” Parti Québécois finance critic Nicolas Marceau said.

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Coalition Avenir Québec Leader François Legault said since Leitãos’s vaunted surpluses came on the backs of Quebec families, the surpluses should be handed back to them in the form of a tax cut. He asked for a cut of $1,300 a year, but got nothing.

In Leitão’s book, dumping the health tax — he’s doing it a year sooner than originally promised — is a big deal representing a drop of $760 million in taxes over a full year that will benefit 4.5 million Quebecers.

For a family with a net income between $18,705 and $41,560, the saving will be $196 a year. A family with a net income between $41,560 and $135,060 saves $433 a year.

Overall, by the time the Liberal term ends in 2018, Leitão says Quebecers will have $1.8 billion more in their pockets thanks to various tax cuts.

The update had other good news for what the minister described as “tagged sectors” of Quebec society.

Health and social services gets $300 million more a year as of 2017-2018. Since the measure kicks in right away, an additional $100 million is going into the system now.

The money is split between home care and public long-term-care facilities servicing the frail and handicapped — the same places that have been in the news lately because of the poor quality of food they serve residents and the lack of bath times.

Education gets $110 million a year as of 2017-2018, including an injection of $35 million right now. Quebec says the money will “increase academic success for elementary and secondary students,” as well as go to vocational training, language training for new immigrants and funding of sports federations.

Overall, Leitão is increasing spending in health by 3 per cent and spending in education by 3.5 per cent in 2017-2018. The Liberal election promise was to increase spending in health by 4 per cent and education spending by 3.5 per cent. Leitão said Quebec could go further on improving health spending, but the money is in Ottawa and talks on a new health funding formula are logjammed.

There is $100 million more for regional economic development and to encourage regional tourism, particularly through festivals and events.

Finally, infrastructure spending gets an additional $400 million, bringing to a total of $10 billion in 2017-2018 the amount being spent to replace outdated structures, economic development projects and sports infrastructure.

All the measures are possible because the government managed to finish the 2015-2016 fiscal year with a surplus of $2.2 billion at the same time as making a scheduled $1.43-billion payment into Quebec’s Generations Fund to combat the debt.

The surplus can be explained by a stronger-than-anticipated economy with more people working plus savings thanks to lower-than-anticipated costs in health and education. Crown corporations like Hydro-Québec poured more cash into the treasury while lower interest rates helped Quebec save on debt costs as well.

In fact, for the first time since 1959, Quebec’s debt dropped by $610 million. Total debt is now $203.3 billion, which represents 53.8 per cent of gross domestic product. Quebec’s total debt will actually increase in the coming years because of capital spending, but its weight in the economy will still decline. 

Quebec says it is now on track for repeated balanced budgets in the coming years even if Leitão has scaled back his growth projection from 1.5 per cent to 1.4 per cent for 2016 and from 1.6 per cent to 1.5 per cent in 2017.

Unemployment is projected to fall to 7.2 per cent in 2016 and 6.9 per cent in 2017.

pauthier@montrealgazette.com

Twitter.com/philipauthier


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