* Canadian province still aims to balance books by 2013-14
* Cuts, tax hikes to curb deficit to C$1.5 bln in 2012-13
* Minority PQ gov’t needs opposition support to pass budget
* Bond markets little changed following budget
By Louise Egan
QUEBEC CITY, Nov 20 (Reuters) – The Canadian province of
Quebec said on Tuesday it will eliminate its budget deficit by
2013-14 through spending restraint and higher taxes on the rich,
but delayed plans to raise mining royalties.
Finance Minister Nicolas Marceau promised to whittle down
the budget shortfall in the current 2012-13 fiscal year to C$1.5
billion ($1.5 billion), or 0.4 percent of gross domestic
product, and balance the books in the following year, as was
widely expected, ending a four-year string of deficits.
The current year deficit excludes a C$1.8 billion fiscal
cost of shutting down the Gentilly nuclear power plant.
About two-thirds of the effort towards achieving the target
comes from limiting growth in government spending, with the rest
coming from modest tax hikes and other measures such as cracking
down on tax evasion and cutbacks at state-run enterprises.
The ruling Parti Quebecois won a minority of seats in the
province’s legislature in a September election, and needs the
support of some opposition members for its budget or it will be
defeated in a non-confidence vote, triggering a snap election.
The main opposition party, the Liberals, called the budget
incomplete and “unacceptable” but said it was reluctant to force
Quebeckers back to the polls so soon.
Liberal finance spokesman Raymond Bachand said the party
would decide later on Tuesday how to proceed.
The third party, Coalition for the Future of Quebec (CAQ),
will vote against the budget unless there is a “major amendment”
such as a reversal of tax hikes, its leader Francois Legault
said.
The PQ has 54 seats in the National Assembly while the
Liberals have 50 and the CAQ has 19.
TAX INCREASES
If the impact of the closing Quebec’s Gentilly nuclear power
plant is included in the overall figures, as some critics say it
should, the deficit this year balloons to C$3.3 billion, the
biggest since 1995-96.
The budget formalizes tax increases for those earning more
than C$100,000 a year — a move the opposition rejects. Finance
Minister Marceau said the plan as a whole helps the middle class
and should win the backing of the two opposition parties.
“Its a balanced, responsible budget … I have difficulty
believing the opposition parties would reject this budget,” he
told reporters.
The budget pledges to limit growth in program spending to
1.9 pct in current fiscal year, down from 2.5 percent in the
previous year, a goal analysts said was quite ambitious.
“There’s no doubt it will be a challenge to eliminate the
deficit,” said Robert Hogue, senior economist at Royal Bank of
Canada.
“It’s reassuring that they remain committed and we’ll see if
they have the resolve to go through with it. Those are very
ambitious goals,” he said.
Spending growth is set at 1.8 pct in 2013-14 and 2.4 pct in
2014-15. The budget also caps public infrastructure spending at
C$9.5 billion a year.
The government proposes raising taxes on tobacco and alcohol
and extending to 2019 a payroll tax on banks that was due to
expire in 2014.
Marceau said that if the government had done nothing, the
deficit was on track to reach C$1.4 bln in 2013-14 and C$2.8
billion in 2014-15 because of a weaker economic outlook and
overspending on infrastructure projects.
The budget cuts Quebec’s 2012 economic growth forecast to
0.9 percent from 1.5 percent forecast in the previous budget.
MUTED MARKET MOVE
Market reaction was muted following the budget. Quebec’s
benchmark 10-year bond yield hovered around 118
basis points above the Canadian government counterpart before
and after the release.
This was still well below the spread of 174 basis points
seen in late 2008 after the global financial crisis hit, but
above the 30 to 40 basis point range seen in early 2007.
Brian Calder, a Calgary-based bond trader with the Bissett
unit of Franklin Templeton Investments, called the overall
reaction in fixed income markets a “shoulder shrug.”
“I’m not reading anything here that would cause anybody to
change their position,” he said. “On the whole, there’s nothing
outrageous here. They’re trying to do the right thing.”
