Quebec projects C$1.7 billion surplus, accelerates debt repayment in 2018-2019

QUEBEC CITY (Reuters) - Quebec’s new center-right government is projecting a C$1.7 billion ($1.3 billion) surplus in 2018-19 on higher revenues, compared with a balanced budget expected by the previous Liberal government in March, a fiscal update on Monday showed.

FILE PHOTO: The flag of Quebec flies on the Regional Parliament building ahead of the G7 Summit in Quebec, Canada June 6, 2018. REUTERS/Yves Herman/File Photo

The Coalition Avenir Quebec government said it would also spend C$10 billion over two years to pay down the Canadian province’s debt, instead of over five years under the previous government.

The CAQ said it would reduce gross debt from 48.2 percent of GDP in 2018 to 45 percent of GDP by 2021, compared with the former Liberal government’s projection by 2023.

“It’s an unprecedented payment toward the debt in Quebec,” CAQ Finance Minister Eric Girard told reporters.

The CAQ took power in the mostly French-speaking province in October, promising to reduce immigration, cut taxes and help families. It also vowed to continue the Liberals’ investor-friendly strategy of delivering balanced budgets and lowering debt.

Sebastien Lavoie, chief economist, economic research and strategy at Laurentian Bank, said by email that the accelerated repayment of debt will reduce borrowing requirements. The reduced bond supply will make Quebec’s credit even more attractive, he said.

“The CAQ government shows in its first update very strong financial discipline and financial markets should take notice,” Lavoie said.

While Quebec reported a budgetary surplus of C$3 billion for the months of April to August, Girard does not expect it to last. Quebec would not deliver such strong surpluses for the rest of the year, as rising interest rates and trade turbulence between the United States and China weigh on growth.

The fiscal update forecast real GDP to grow 1.8 percent in 2019 after expanding 2.5 percent in 2018.

The CAQ will spend C$1.7 billion over five years aimed at families and seniors, along with C$1.6 billion over the same time frame geared at boosting business productivity.

The government had been pressed to announce details regarding its spending and tax relief plans despite its brief tenure. It faces pressure from unions and other groups to boost spending on social programs, and Premier Francois Legault told reporters he believes the government’s first budget would be able to strike a “balance between services and keeping money in our (citizens’) wallets.”

Quebec will also introduce a permanent additional capital cost allowance of 30 percent for certain investments to give the province a competitive edge against recent corporate tax cuts in the United States, Girard said.

($1 = 1.3190 Canadian dollars)

Reporting by Allison Lampert; Editing by Richard Chang and Dan Grebler