March 17, 2016 / 8:53 PM / 2 years ago

UPDATE 1-Quebec sees balanced 2016-17 budget, repeats debt-reduction targets

(New throughout, adds details, background, comments from finance minister and bank economist)

By Allison Lampert

QUEBEC CITY, March 17 (Reuters) - Quebec will balance its books for the second year in a row in 2016-2017, the Canadian province said on Thursday, while reaffirming prior debt-fighting commitments for the years ahead.

Quebec, which confirmed its first balanced budget in fiscal 2015-16 after six consecutive deficits, has emerged with British Columbia as the only Canadian provinces expecting balanced books in 2016-2017, Finance Minister Carlos Leitao said.

“This marks a major milestone for our government,” Leitao said. “We’ve gotten our fiscal house in order.”

Quebec, Canada’s second-largest province, said C$2 billion ($1.54 billion) in its C$100 billion budget would go towards a fund aimed at reducing the debt.

Quebec introduced modest spending for social programs and infrastructure and said it would reduce its debt burden from 55 percent of gross domestic product this year, to 45 percent of GDP in 2026.

Earlier, the province had expected to reduce the ratio to 54 percent of GDP this year, but had to change its forecast after Statistics Canada presented revised GDP figures.

Elected in 2014, the Liberals have pledged balanced budgets from 2015 through 2020. Quebec has one of the highest public debt loads of any province.

Quebec said it will need to borrow C$47 billion over three years to pay for maturing government bonds and capital investments.

The government announced C$103 billion in revenues, up 3.2 percent in 2016-2017, and C$100 billion in spending, up 2.5 percent during the same period. The province expects to benefit from a 5.7 percent increase, or extra C$1 billion, in federal transfer payments in 2016-17.

The Liberals, denounced by critics as an “austerity government”, announced C$3.6 billion in new spending through 2020 to support infrastructure, education, company innovation and manufacturing.

Leitao distanced his government from those in Europe who have made deep cuts.

“It is a little insulting for those societies which have lived through real austerity.”

The government expects its debt-fighting Generations fund, which earns an average annual return of six percent, to grow by C$14 billion through 2021. The fund’s growth sends a clear signal to the market about Quebec’s debt-fighting priority, said Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities.

“Some people might think a balanced budget is boring but for this season it’s very good news,” Lavoie said.

The spread between the yields on Quebec and Canada’s 10-year bonds was little changed at 96.5 basis points.

$1 = 1.2977 Canadian dollars With additional reporting by Fergal Smith in Toronto

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