Press release No. 3

2005-2006 Budget Speech
Supporting investment and job creation  

“Only a wealthy Québec can ensure the sustainability of its public services.”
— Michel Audet

Québec, April 21, 2005 – When Finance Minister Michel Audet tabled the 2005-2006 Budget in the National Assembly today, he said he was convinced that Québec has everything it takes to tap its full economic potential.

“Our diversified economy, top-notch research and innovation capability, qualified and creative labour force, and low startup costs create advantageous conditions for businesses,” he explained.

In this context, the 2005-2006 Budget is continuing the efforts of the past two years to eliminate all obstacles that prevent the Québec economy from moving forward, and will make it possible to meet two major challenges:

• succeed on a more competitive world economic stage characterized by globalization and the spectacular rise of emerging economies;
• counter demographic trends that force us to be more innovative and effective.

The 2005-2006 Budget will make it possible to take action on two fronts:

• stimulate private investment and job creation, the engines of economic growth;
• make new development tools available to people in the regions, particularly to ensure the sustainable development of their economies.

The measures announced in the 2005-2006 Budget, which are designed to foster wealth creation and increase economic prosperity, are part of the government's sustainable economic development strategy that will be made public shortly by the Minister of Economic Development, Innovation and Export Trade.

Increasing private investment for greater productivity

”For our government, it is clear that economic prosperity and job creation depend above all on a substantial level of private investment,” the Minister of Finance declared.

Concrete economic results

The Minister of Finance pointed out that the government’s actions were already yielding tangible results. Québec's economy is healthy, as the indicators clearly show:

• more than 100 000 new jobs have been created over the past two years;
• over 60% of the labour force is working, the highest employment rate in the history of Québec;
• the unemployment rate is the lowest since 1975;
• the number of social assistance recipients has dropped by over 25 000 in the last two years;
• despite the appreciation of the Canadian dollar, Québec's international exports are up for the first time in four years;
• housing starts exceeded 58 000 units, the best performance in 17 years;
• private investment grew 13.7%, accounting for 19% of all private investment in Canada , the best performance in 12 years.

To do even more and further stimulate private investment, the 2005-2006 Budget provides for three series of measures:

• the implementation of a reform of corporate taxation;
• major initiatives to facilitate business financing;
• several improvements to the support measures for R&D, innovation and exports.

Reform of corporate taxation to promote investment

The corporate taxation reform announced in the 2005-2006 Budget Speech is based on:

• a cut of more than 50% in the tax on capital by 2009, the rate being gradually reduced from 0.6% to 0.29% as of January 1, 2006 ;
• an increase in the income tax rate applicable to large businesses by 2009, the rate gradually increasing from 8.9% to 11.9% as of January 1, 2006 ;
• a reduction in the taxation rate of SMEs to 8.5 % on January 1, 2006 ;
• the introduction of a capital tax credit of 5% of the value of new manufacturing investments in fabrication and processing equipment made after the day of the 2005-2006 Budget Speech.

This reform will be largely self-financed by occupying the tax room vacated by the federal government regarding corporate income tax. The combined taxation rate applicable to the income of large businesses in Québec will thus remain competitive, at 30.9%.

Once its full impact is felt, this reform of corporate taxation will have injected $305 million into the Québec economy. The impact for SMEs will be $190 million. The effectiveness and overall competitiveness of the corporate tax system will be enhanced, thereby fostering investment and job creation.

Assistance for business financing

The Finance Minister also announced today a series of measures to correct deficiencies in the current methods for financing Québec businesses. The measures rely primarily on existing tools, which will be used and developed more effectively.

To facilitate financing for business seeding and startup, the “regions” component of the Fonds d’intervention économique régional, FIER-Régions, whose novel public-private capitalization formula has a substantial multiplier effect during seeding and startup phases, will receive additional funding of $78 million, thus doubling the government's initial capital outlay.

Mr. Audet also announced that new initiatives would be launched to further promote the financing of businesses in the growth and expansion phases. In particular:

• tax-advantaged funds will henceforth be able to invest in larger businesses, that is, businesses with assets of up to $100 million;
• the SME Growth Stock Plan is being created to provide businesses with improved access to the public savings market.

Paving the way for someone else to take over the reins is a crucial issue for SMEs in Québec. Therefore, the 2005-2006 Budget provides for the creation of Relève PME, a new component of the Financement PME program managed by Investissement Québec.

Support for R&D, innovation and exports

Supporting investment means giving special attention to R&D, innovation and exports. Accordingly, the 2005-2006 Budget:

• raises the refundable “R&D salary” tax credit for SMEs to 37.5%;
• encourages product development by extending the design tax credit to all designers in all industrial sectors;
• devotes $15 million, over three years, to boost the productivity of manufacturing SMEs and foster export development to take better advantage of business opportunities on foreign markets.

$240 million for the development and prosperity of our regions

To support efforts to adapt and diversify in the regions and act on some of the priority recommendations of the Coulombe Commission's report, the 2005-2006 Budget provides for investments of $240 million over three years:

• $75 million will be allocated over three years to improve forest management.
• $40 million will be placed at the disposal of workers, communities and businesses that rely on a very limited number of industrial sectors, such as forestry products, for their prosperity.
• $103 million will be allocated to support efforts to diversify in the regions, particularly by extending the tax credits for secondary and tertiary processing businesses in the resource regions until the end of 2009. Close to 700 manufacturing businesses in the regions can already benefit from the credits, including nearly 250 in the wood processing sector.
• $22 million will be devoted to improving infrastructures in national parks.

“In this Budget we will have put considerable effort into turning Québec's economic potential in all regions to greater advantage. We will be injecting close to $900 million over three years into fostering wealth creation and the prosperity of our regions,” the Finance Minister said.

- 30 -