Supplementary Statement to the 2002-2003 Budget:
Government action to support the economy and maintain
balanced public finances

This Supplementary Statement is a necessary addition to the Budget I tabled last fall. It should be recalled that on November 1, 2001, almost five months ahead of the regular schedule, I delivered the 2002-2003 Budget Speech, an exceptional move in response to a situation that was also exceptional. Given the highly uncertain economic context, we decided to take action, and to do so rapidly, by mobilizing all of the means at our disposal to support economic activity and employment. Simultaneously, we made the decisions necessary to maintain a zero deficit this year and subsequent years as well.

The aim of this Supplementary Statement is primarily to update the principal economic data and financial forecasts for 2001-2002 and 2002-2003 and present the forecasts for 2003-2004. This operation is crucial in order to immediately set spending levels for 2003-2004 and enable the government to undertake the efforts required to achieve its objectives. However, given the bad news Québec has been receiving for two months regarding federal transfers, it is clear that a sword of Damocles now hangs over the government's financial framework. It is thus imperative that the population be informed about this matter.

PAULINE MAROIS

Québec, March 19, 2002 - The Supplementary Statement to the 2002-2003 Budget tabled today by Deputy Prime Minister and Minister of State for the Economy and Finance Pauline Marois maintains balanced public finances. "Thanks, notably, to the forceful action taken by our government, the Québec economy has withstood the slowdown well, and all signs point to economic growth of 1.7% in 2002, as forecast. Québec's stronger economy also allows us to anticipate additional own-source revenue of $586 million for 2001-2002 and 2002-2003. Added to that is a reduction of $192 million in debt service for the same period. However, since we will have to use these amounts to offset the cuts in federal transfers, vigilance in managing public spending will be crucial if we are to stay the course in maintaining a zero deficit," the Minister said.

Economic change: Québec outperforms its neighbours

Like the other industrialized nations, Québec experienced a considerable slowdown in economic growth in 2001. However, Québec outperformed its neighbours in the second half of the year by posting greater increases in output and job creation. Since last June, 63 000 jobs have been created in Québec, compared with 33 000 in the rest of Canada. The employment rate, i.e. the percentage of persons aged 15-64 who are employed, is currently at a record level in Québec. Household confidence has increased nearly 30% since October 2001. Retail sales are up, and the number of residential housing starts is very high. Exports have improved and investment intentions for 2002 are progressing rapidly.

The Minister was pleased with the effectiveness of the measures introduced in last November's Budget. "We invested $400 million to bolster consumer confidence. In December 2001, the government made an additional payment of $100 to all recipients of the QST credit. This measure definitely helped boost retail sales in December; they grew twice as much in Québec as in the rest of Canada. The indexation of the personal income tax system and social assistance benefits by 2.7% also contributed to the growth in household confidence," Ms. Marois pointed out.

Overall, economic conditions remain favourable to continued growth in Québec. Economic activity should increase in 2002 as the full impact of the public investment acceleration plan is felt and economic growth picks up pace in the United States and Canada.

"This economic outlook enables us to confirm our forecast of 1.7% growth in gross domestic product (GDP) in 2002. Moreover, we anticipate 2.9% growth in 2003," the Minister said.

Higher revenue cancelled out by lower federal transfer payments

Since the start of 2002, tax revenues have been slightly higher than anticipated. The government should therefore have another $586 million in own-source revenue for the 2001-2002 and 2002-2003 fiscal years, and debt service should be $192 million less due to lower interest rates. However, these additional amounts will be used to offset the reductions in federal transfer payments, which amount to $373 million in 2001-2002 and $405 million in 2002-2003.

An action plan that is well under way

Four months after the tabling of the 2002-2003 Budget, which allocated $3 billion for public-sector investments under the AGIR plan, 1 225 construction, renovation, expansion and equipment-acquisition projects have already been approved in all regions of Québec, for a total investment of $2.2 billion. Work totalling over $1 billion will be undertaken before July 1, 2002. A considerable portion of the envelopes earmarked for the ministère de la Santé et des Services sociaux, the ministère des Transports, the ministère de la Famille et de l'Enfance and the ministère de la Recherche, de la Science et de la Technologie is already committed.

The Minister pointed out that the projects selected to date will improve the services provided to Quebecers in a number of ways. In particular, they will make emergency services more accessible, improve the quality of life of persons in residential care and upgrade hospital equipment. They will open up another 1 750 places for university students in leading-edge sectors and an additional 900 places for vocational students. They will also make it possible to upgrade thousands of kilometres of road, renew several water supply and sewage systems, build or renovate thousands of dwellings and immediately begin building early childhood centres to open up 4 000 new spots.

"The work to be undertaken shortly will create over 16 000 direct jobs and thousands of indirect jobs. We still have close to $1 billion to devote to other projects, and we are confident that we will meet our goals on schedule," affirmed Ms. Marois.

Support for private-sector investment

The measures announced in the 2002-2003 Budget to stimulate private-sector investment and support job creation have produced positive results. By granting a six-month extension to SMEs for remitting income tax and tax on capital instalments, the government provided them with additional liquidity at the right time. The substantial reduction in the tax on capital announced last November will make our companies more competitive; already, it encourages investment here in Québec. Enhanced support measures for the resource regions have also helped bolster investment and employment.

The action taken by Investissement Québec through its FAIRE program and by the Société générale de financement (SGF) has accelerated the implementation of a number of projects throughout Québec. Since November 1, 30 projects representing private investments of $2.5 billion have received government support. These include the Gaspésia mill in Chandler, the Alcan projects in the Saguenay, the Alouette aluminum smelter in the Côte-Nord region, the Kruger paper mill in the Mauricie region and the Cargill plant in the Montérégie region.

"Last November, we tabled a Budget to safeguard Quebecers' economic and social security. The positive indicators we are observing in the Québec economy show that we took the right actions at the right time," the Minister stated.

Maintaining a zero deficit

While introducing certain measures to fight poverty and stimulate private-sector investment and job creation, the Minister reaffirmed her commitment to maintain balanced public finances. "Quebecers have made considerable efforts to achieve a zero deficit. We must stay our course in this regard. This will require vigilance in upholding our spending targets and imagination in proposing measures that yield maximum spinoffs, both in terms of economic development and enhanced quality of life for our fellow citizens," Ms. Marois concluded.

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Source: Nicole Bastien
Press Officer
Office of the Deputy Prime Minister and
Minister of State for the Economy and Finance
Tel. (418) 643-5270 or (514) 873-5363
www.finances.gouv.qc.ca

Information: Jacques Duval
Direction des communications
Ministère des Finances
Tel. (418) 691-2252