1998-1999 BUDGET:

Highlights

Message from the Deputy Prime Minister and Minister of State for the Economy and Finance

This Budget is centred on the same principles that have guided the government's actions to date, namely, rigorous management of public finances, an unrelenting concern for job creation and socially fair apportionment of the dividend from these policies. The results for 1997 are eloquent: 48 000 jobs were created, twice what was forecast, and the deficit target of $2.2 billion was met.

The Budget presents a sweeping reform of our accounting rules, which makes Québec "one of the most advanced governments in Canada" and to which the Auditor General subscribes. Whether new standards or old standards apply, we are still on course to achieve a zero deficit.

The Budget also constitutes an all-out offensive to create jobs: the economic development strategy Objective: Focus on Jobs, will guide us as we embark on the new millennium. The first concrete applications of this strategy are found in the Budget: for example, a corporate taxation reform for promoting employment; new tools for generating investments of $20 billion, and a series of measures for young people and families. This is a forward-looking Budget that brings us closer to building the nation that the Québec people deserve.

Bernard Landry

SUMMARY

• No increase in income tax and other taxes.
• Major reform of accounting principles in keeping with the recommendations of the Auditor General.
• Still on course to achieve a zero deficit next year:

  - 80% of the deficit reduction objective already achieved.

• Tabling of an economic development strategy: Objective: Focus on Jobs.
• Concrete measures for employment:

  - a nearly $300-million reduction in income tax and other taxes for SMBs;

  - $232 million to assist young people and families;

  - plan to generate $19 billion in private investment;

  - action plan to foster the development of the financial sector in Montréal and Québec as a whole;

  - $49 million for culture and the cultural industries.

I. ELIMINATION OF THE DEFICIT

1997-1998 target achieved

• Despite the enormous costs generated by the ice storm, the deficit ceiling set by the Act respecting the elimination of the deficit and a balanced budget will be respected.
• The government will eliminate the deficit despite the massive cuts to federal transfers.

On course toward a zero deficit
(in millions of dollars)

New accounting policies: Québec leads the way

• Starting now, the government is undertaking a major reform of accounting policies that implements the recommendations of the Auditor General and updates the accounting policies applied for the past several years.
• Gone are the days of retirement plan commitments that do not appear in the government's financial statements.
• Gone are the days of disparate accounting in respect of specific agencies.
• Gone are the days of criticism and suspicion regarding the proliferation of special funds.
• With this reform, "the Québec government has become one of the most advanced governments as far as the application of specific public sector accounting policies is concerned" (joint report of the Study Committee on Government Accounting).
• Whether old standards or new standards apply, the deficit targets will be met.

The government has stopped borrowing to pay "the grocery bill"

• Four years ago, the government had to borrow to pay for $4.1 billion in current spending, "the grocery bill" so to speak. Today, all current spending is paid for without borrowing money, and the government will record its first surplus in 20 years.
• Gone are the days of placing the burden of current spending on the shoulders of young people.

Current account surplus or deficit
(in millions of dollars)

II. ONE OF THE BEST ECONOMIC PERFORMANCES IN 10 YEARS

• The Québec economy experienced a significant turnaround in 1997:

  - job creation: twice the rate forecast;

  - the unemployment rate: one of the lowest in 10 years;

  - household confidence: at its highest level since the late 1980s;

  - business investment in 1998: increase of 31% compared with 1995.

• The 1998-1999 Budget is based on the assumption that the economy will grow by 2.3% in 1998.

GROWTH IN ECONOMIC INDICATORS

III. TABLING OF QUÉBEC'S ECONOMIC DEVELOPMENT STRATEGY: OBJECTIVE: FOCUS ON JOBS

• This strategy outlines policy directions aimed at making Québec a leading modern economy.

• Several of the measures in this Budget are key components of the strategy. Three action plans are being implemented:

  - Corporate Taxation Reform;

  - Increasing Private Investment;

  - Promote the Development of the Financial Sector.

• Other documents will be published in the coming months.
• With Objective: Focus on Jobs, the government is submitting for consultation a series of numerical objectives for the 21st century.

IV. STREAMLINE PERSONAL AND CORPORATE TAXATION

A commitment for the future

• The government is undertaking, once it has eliminated the deficit, to ensure that most of its leeway is used to reduce income tax and other taxes.

Personal taxation reform

Last year, the government carried out a major reform of the taxation system pertaining to individuals. In the 1998 taxation year:

• Québec households will benefit from a $500-million net reduction in their tax burden;
• 200 000 more low-income taxpayers will not pay any income tax.

Corporate taxation reform

• With this Budget, the government is announcing a reform of the taxation system as it applies to SMBs that will lead to a reduction of nearly $300 million in their tax burden in 2001-2002:

  - reduction of 37% in the payroll taxes borne by SMBs.

• This reform will make Québec's corporate taxation system even more competitive and boost potential for economic growth.
• In addition, the government will be able to guarantee that businesses will not be subject, for a period of 10 years, to increases in tax rates in respect of major investment projects.

CORPORATE TAXATION REFORM: IMPACT
ON THE GOVERNMENT'S FINANCIAL FRAMEWORK
(in millions of dollars)

V. A BUDGET FOR YOUNG PEOPLE AND FAMILIES

The government is stepping up the efforts already made in this regard and is adding $232 million over two years to the $100 million announced last year.

Foster broader access to on-the-job training

• $33 million will be allocated over two years to provide 20 000 internships for young people per year.
• 550 remunerated internships for students per year: the government and the Fonds de solidarité des travailleurs du Québec are setting up a $20-million fund whose revenues will be used to finance these internships.

Encourage training in sectors that create jobs

• Short training programs in high-technology sectors:

  - a budget of $4 million is allocated to educational institutions.

  - these programs will focus on career shifts or satisfy the specific needs of businesses.

• Program of doctoral excellence fellowships in priority sectors for industry:

  - students will be able to take advantage of $4.5 million in fellowships over the next two years;

  - the Fonds pour la formation des chercheurs et l’aide à la recherche (FCAR) will develop this program in partnership with industry.

Support the creation of jobs for young people

The following initiatives will help to create nearly 5 000 jobs over the next two years. The government will allocate $67 million for this purpose.

• 2 000 more young people will be able to acquire work experience and theoretical training owing to the improvement of the Science and Technology Skills Development Program.
• $22 million will be injected to create 1 500 strategic jobs in SMBs over the next two years.
• Government departments and agencies will receive additional funds for hiring at least 1 000 more students and offering long-term internships to several hundred new graduates.
• A financial support program will be introduced for businesses that have operations abroad and offer internships overseas. This program will make it possible to offer 325 internships.
• 150 jobs for young people in the regions: the Société des établissements de plein air du Québec will set up a program for the development of wildlife habitats and land, the consolidation of accommodation facilities and the training of guides and facilitators in natural environments.

$41 million to reduce the indebtedness of students

• To assist young graduates faced with substantial payments on their student loans, a tax credit equal to 23% of the interest on these loans will be granted.
• Taxpayers who go back to school will be able to make tax-free withdrawals from their registered retirement savings plan.
• Child care expenses incurred to pursue part-time studies will henceforth be eligible for the tax credit in respect of child care expenses.

Help young people in difficulty

• An additional $20 million will be allocated over the next two years to help young people and their families, mainly in the areas of suicide prevention and the fight against substance abuse.

Day care services for three-year-olds

• To consolidate the family policy, an additional $25 million will be allocated per year, as of next September 1, for day care spaces at $5 a day for children three years of age.

MEASURES FOR YOUNG PEOPLE AND FAMILIES
(in millions of dollars)

VI. $19-BILLION INCREASE IN PRIVATE INVESTMENT

This Budget provides Québec with a series of new tools for increasing private sector investment by $19 billion over five years.

INCREASE IN PRIVATE INVESTMENT OVER FIVE YEARS
(in millions of dollars)

$12 billion in private investments with government corporations

The SGF in partnership with the private sector

• The revitalized SGF will make investments of $10 billion over five years in partnership with the private sector: 75 000 jobs will be created in Québec as a whole.
• Three key principles will guide its initiatives:

  - investment projects must be carried out on a business basis;

  - the agency must never acquire a majority or permanent interest;

  - it must focus on initiating and guiding new investment projects.

• Without affecting its spending levels or the deficit, the government will inject an average of $400 million a year, over the next five years, into the capital stock of the SGF.

The Innovatech corporations: technological partners

• The Innovatech corporations will be turned into capital stock corporations and have access to $250 million to invest in projects that create jobs. Investissements will reach $1.3 billion within five years.

An Innovatech corporation for the resource-rich regions

• A fourth Innovatech corporation will be created for the resource-rich regions. Investments of up to $250 million will be made in these regions.

A broader mandate for the SDBJ

• From now on, the Société de développement de la Baie James (SDBJ) may act as a partner in economic development projects. This partnership will lead to $40 million in private investments.

Hydro-Québec, a profitable enterprise and a source of financing

• Through the implementation of its strategic plan, Hydro-Québec will be able to achieve a rate of return of 11.8% in five years.
• A portion of the dividends paid by this government corporation will be used to finance in its entirety the investment of nearly $2.4 billion that the government is making in the government corporations mentioned above.
• The dividends of Hydro-Québec, like its very operations, will spur economic development in Québec.

Investissement-Québec: $7 billion in private investment

Establishment of Investissement-Québec

• To attract more investments to Québec, the government is setting up Investissement-Québec.
• This government corporation will:

  - act as a one-stop Québec government information centre for investors, offering reception and financial support services for major projects;

  - be mandated to rapidly offer investors a comprehensive package from the government;

  - be responsible for prospecting for local and foreign investments.

• Investissement-Québec will have access to a total
  budget of $500 million over the next five years, making it possible to generate $5 billion in private investment.
• A subsidiary, devoted specifically to financing SMBs and cooperatives, will generate $1.3 billion in investments over the next five years.

Support for worker training

Emploi-Québec will support the efforts of Investissement-Québec by devoting $40 million a year, over the next five years, to supporting manpower training needs in respect of investment projects worth a total of $800 million.

Mining and energy projects

• $6 million a year over the next three years for the development of mining deposits should generate investments of at least $200 million.
• $8 million will be allocated over two years to promote the extension of the natural gas distribution network. This measure will generate $50 million in investments.

Further developmental investments

• A new program, with a budget of $180 million over five years, will be set up for waterworks, sewer and water purification projects in municipalities with fewer than 5 000 inhabitants.
• Assistance for the management of private forests will be increased by $5 million a year over the next five years.
• Budgets will be allocated to carry out several of the commitments made by the government during the Québec agriculture and agri-food conference:

  - the budget of the Agro-environmental Investment Assistance Program will be increased to $400 million;

  - $4 million will be allocated to the Agri-food Exports Development Fund;

  – $2 million will be earmarked for the joint financial support of research and development projects;

  – $750 000 will be allocated to the development and processing of traditional Québec foods;

  – an agro-environmental research and development institute will be established.

• Development of Québec City:

  – the Québec City Economy Diversification Fund will be created and granted $20 million;

  – the government will contribute $5.5 million over the next three years to the expansion of the facilities and operations of the National Optics Institute.

VII. FOSTER THE DEVELOPMENT
OF THE FINANCIAL SECTOR

A concrete action plan is being implemented to develop the financial sector, which is of vital importance to economic development and job creation.

Develop the mutual fund and portfolio management industry

• Tax assistance will be awarded to companies that create new mutual funds which are to be managed and administered in Québec.
• Revenues derived from these funds will be exempt from income tax on profits for a period of five years.
• To support portfolio management companies while young portfolio managers are being trained, these companies will be entitled, for three years, to a tax credit equal to 40% of the salary paid to these employees.

Develop Montréal as an international finance centre

To attract a large number of international financial operations to Montréal, the international financial centre (IFC) program is undergoing a major overhaul.

• The range of eligible operations is broadened to include:

  – back office operations;

  – the promotion, administration and management of mutual funds;

  – financial engineering services;

  – treasury management;

  – financial leasing;

  – factoring;

  – letters of credit for import-export operations;

  – clearing house services;

  – fiduciary services.

• During the training of young employees specializing in international financial transactions, IFCs will be granted a refundable tax credit equal to 40% of the employee's salary.
• The main tax benefits granted to IFCs will be guaranteed until at least 2008.
• The tax exemption granted to foreign specialists working in Montréal is extended from two years to four.

  Financial institutions have training and research needs in highly specialized fields.

• A training and research institute in financial mathematics and financial intermediation will be created to provide upgrading courses for professionals and managers already on the labour market and to conduct research targeting priority needs.

VIII. SUPPORT CULTURE AND THE CULTURAL INDUSTRIES

This Budget bolsters the government's essential support for Québec culture.

• Reading policy: Appropriations of $25 million will be allocated over the next three years to enable schools and public libraries to purchase more books, and to support reading promotion and awareness activities.
• Information highway: An additional $4 million will be devoted annually to developing the information highway, and another $2 million provided for projects financed by the Fonds de développement de la Métropole.
• Société de développement des entreprises culturelles (SODEC): A $20-million advance will be granted to SODEC, which will have new financial tools for providing more support for Québec cultural products and large-scale productions.
• Film and television productions: The tax credit for special effects and computer animation will be improved, and extended for another year in respect of variety shows and magazines. In addition, a tax credit will be introduced to promote the filming of foreign productions in Québec.
• Support for exports: To provide financial support for cultural businesses that wish to export, the current budget of $2 million will be renewed for an additional two years.
• Charitable donations: Such donations will be eligible for tax assistance equal to up to 75% of the donor's income.
• Cultural organizations: $3 million from Loto-Québec will be allocated to help cultural organizations put their finances on a healthy footing. These funds will be earmarked prioritarily for the Théâtre du Trident, the Orchestre symphonique de Québec and Les Grands Ballets Canadiens.
• Cultural investments: an additional $30 million is provided for public libraries, cultural facilities and the restoration of religious heritage.

Gouvernement du Québec   |  © Gouvernement du Québec, 2001