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Quebec budget aimed to soothe business leaders

Finance Minister Nicolas Marceau's first budget is a public-relations campaign with a simple slogan: We are not that scary.

To appease shell-shocked business leaders, the Parti Québécois government presented a budget that is so friendly to investors it could almost pass for Liberal.

Under close watch from credit-rating agencies, Mr. Marceau is not pushing back the date when Quebec will balance its books, contrary to his federal counterpart. Mr. Marceau is still shooting for the 2013-2014 fiscal year.

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With a departure from the "act now, think later" approach that characterized its first days in office, the PQ will consult the mining industry before changing how royalties are calculated, which displeased its left-wing ally, Québec Solidaire. "We will guarantee to companies predictability in governmental actions," Mr. Marceau said.

And there are goodies for many industries. The PQ hopes that private investments will pick up where public spending in infrastructure is scheduled to retreat to the tune of $1.5-billion a year.

There will be a 10-year tax holiday for investments of $300-million or more in sectors Quebec deems strategic: mineral and wood processing, manufacturing, value-added distribution centres and, surprisingly, data processing and hosting, which are not known to create many jobs. Expect Google and the like to knock at Quebec's door.

The PQ is also creating a $200-million fund to finance the development of green technologies, among other initiatives.

However, the pharmaceutical industry lost big with the government's decision to abolish the so-called "15-year rule." Over the years, Quebec attracted research-based pharmaceutical companies with a generous drug-reimbursement policy. Once a drug made it on an accepted list of medications, the province reimbursed its full cost, even when its patent expired and cheaper generic alternatives were available. The "15-year rule" was to cost $174-million this year alone.

But this tradeoff has gone awry as pharmaceutical companies have closed one lab after the other in the Montreal area. As a consolation prize, Quebec will raise the tax credit for pharmaceutical R&D to 27.5 per cent from 17.5 per cent.

The financial sector will also feel the pinch. Quebec will prolong until 2019 the "temporary" payroll taxes on financial institutions used to pay down the deficit. These taxes were to expire in 2014.

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But it was not businesses that were seeking reassurances as much as credit rating agencies, which are quick to spot governments like France that are savvy with words but short on action.

Mr. Marceau had to renege on electoral promises to show he is serious. The PQ no longer intends to repeal the Liberals' hike of electricity rates. This hike was to bring in $1.6-billion in extra revenue between 2014 and 2018. However, the PQ will raise electricity rates modestly, to keep up with inflation. (Unfortunately, the PQ refrained from indexing the $7-a-day daycare rate, an aberration for cash-strapped Quebec.) Mr. Marceau won't dismantle the Generation Fund either, a fund dedicated to the reimbursement of the province's $193-billion gross debt, but which is as politically associated to the Liberals as the Plan Nord. Instead of replenishing it solely with electricity revenues, it will fill it with mining royalties and higher taxes on the usual suspects: smokers and drinkers.

Mr. Marceau even borrowed a page from the Coalition Avenir Québec's centre-right program. He is asking Hydro-Québec to cut 2,000 jobs through attrition, hoping for an extra $225-million in profit.

But the PQ's real test will be its ability to constrain the growth of government expenses to a lowly 1.8 per cent. On this feat rests Quebec's first balanced budget since the financial crisis. As no government has done this in 14 years, it is a very tall order.

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About the Author
Chief Quebec correspondent

Sophie Cousineau is The Globe and Mail’s chief Quebec correspondent. She has been working as a journalist for more than 20 years, and was La Presse’s business columnist prior to joining the Globe in 2012. Ms. Cousineau earned a master’s degree in journalism from the University of Illinois and a bachelor’s degree in economics and political science from McGill University. More

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