Drinkers, smokers, civil servants to feel pinch in new Quebec budget

CTV Montreal:Belt tightening in Quebec Mutsumi Takahashi talks to Paul Karwatsky about the budget

QUEBEC - Quebec civil servants, drinkers and smokers might be groaning this afternoon as Finance Minister Carlos Leitao handed down the first budget of the new Couillard government.

The $97 billion budget will set the table for a slow lowering of the total of Quebec's 430,000 civil servants starting with a two year hiring freeze.

Carlos Leitao notes that payments to civil servants now represent 59 percent of program spending and the new measures should allow that total to return to the acceptable target of 2.1 percent of expense increases.

Civil service payments rose by four percent between 2010-11 and 2013-14, which the government felt was too high. Total government expenses rose by 2.6 percent during that same time.

The Couillard government foresees 15,000 public service jobs ending annually by 2018-19.

The government hopes that the measures will permit it to save $100 million this year, a total which will rise to $500 million by 2015-16.

Smokers and drinkers will also do their part, as the tobacco tax will rise $4 per carton of 200 cigarettes. Beer will cost five cents more per bottle and wine 24 cents, due to tax hikes. Taxes on beer in bars will be reduced by seven cents per bottle and 92 cents per bottle of wine.

The deficit will be $2.35 billion, $600 million more than what had been targeted by the previous government, which aimed at $1.75 billion deficit.

Spending growth be will capped at 1.8 percent in 2014-2015 and an average of 2.1 percent from 2015 to 2019, a figure significantly lower than that of recent years.

The government is also expected to play hard line in contract negotiations with public servants, whose agreements expire in 2015.

Quebec also assumes that doctors will agree to spread their pay increases to a greater number of years, although that deal has not been formally agreed to.

The Liberals had vowed to invest over $11 billion in infrastructure per year for 10 years. But only $9.5 billion will be invested next year and $8 billion for 2016-17.

Various commitments made by the previous government will be re-evaluated, deferred or discontinued: regional directorates of the Ministry of Education will be abolished, fertility funding will be reassessed and some foreign offices will be streamlined.

The gradual abolition of the health tax will take place at the end of the mandate, if a surplus permits.

Economic growth is expected to settle at 1.8 percent in 2014 and two percent in 2015.

Total government expenses will reach $74.2 billion in 2014-15, but when other elements are figured into the equation, that total comes out to around $97 billion.

Montreal mayor perplexed by tax credit cut

Montreal mayor Denis Coderre criticized the decision to slash tax credits to multimedia companies by 20 percent.

“I believe personally that the tax credit brings more investment to multimedia and movie industry so why do we lower it from 20 percent? I’m perplexed. They’ll have to explain why they’re doing that,” said Mayor Coderre.

Josée Bouchard of The Quebec Federation of School Boards said that $150 million in cuts would inevitably hurt student services. She also expressed concern over the hiring freeze, which gives the minister ultimate control over staffing.

Leitao, in an interview with CTV Montreal, said that he believes that civil service unions will be on board.

“Everybody in Quebec understands that there’s a very tight space for us to increase the overall wage buildup of government, people understand if we do that then we’ll have to reduce the level of services that we deliver, I think the unions themselves understand that.”

Leitao noted that the remains room to negotiate many future contract and staffing details even under the new budget.

The government is expected to take time out of its summer recess to reconvene in July to pass the budget into law.

Business responds

The budget includes a halving of the eight percent tax imposed on small and medium sized manufacturers. The rate will decline from eight to six percent and will be ultimately reduced to four percent on April 1, 2015.

That reduction will put Quebec at the Canadian average rate for the category.

The rule will apply to about 7,500 businesses and will result in savings of up to $20,000 per business.

Leitao said that the adjustment should lower their tax burden by $157 million over five years.

One business representative applauded the news.

“The rate has been at four percent for a long time in the other provinces and we needed to do it in Quebec, so they did. It's a very strong signal that the government wants to help the manufacturing industry,” said Audrey Azoulay of the Quebec Manufacturers and Exporters Association.

Quebec’s 175,000 businesses with less than $5 million in annual payroll will receive a tax holiday from the provincial health fund until 2020 when hiring new, skilled workers.

Manufacturers based outside of the big cities will now be permitted to claim certain supplemental transportation tax write-offs.

The business tax credits popular with Montreal's movie and video game industry could hurt, however.

The government aims to raise revenues by $495 million by 2016-17 by reducing the 20 percent tax credit and cancelling some commitments made by the previous government.

The Montreal movie and video game industry has benefited from those grants.

The cut will reduce by 21 percent the financial aid given to businesses by 2016-17, bringing the aid to $1.9 billion, approximately the same level as in 2006-07.

“There are over 160 aid programs. When they give $4 billion to businesses, then they let them sink or swim in the most difficult tax environment in the country,” said Martine Hébert. the Canadian Federation of Independent Business

The government also reaffirmed its dedication to the Northern Plan.

“That's the kind of signal you need externally - not only here in Quebec, but also in all the other jurisdictions saying, 'We are open for business.'" said Francoise Bertrand Québec's Federation of Chambers of Commerce.

Highlights of Quebec's 2014-15 budget:

Deficit: $2.35 billion on revenue of $71.4 billion; projected balanced budget in 2015-16.

Government spending: Growth of 1.9 per cent.

Government revenue: Growth of 2.9 per cent.

Daycare: Increases to $7.30 a day from $7, as of Oct. 1; creation of 6,300 new places this year.

Tobacco: Hike of $4 for a carton of 200 cigarettes, as of Thursday; expected additional tax revenue of $90 million this year, $120 million in 2015-16 and $115 million in 2016-17.

Alcohol 1: Five-cent tax increase on a 341-millilitre bottle of beer purchased for at-home consumption, as of Aug. 1; 24-cent hike on a 750-millilitre bottle of wine.

Alcohol 2: Seven-cent tax reduction on a 341-millilitre bottle of beer purchased in a bar, as of Aug. 1; 92-cent reduction on a 750-millilitre bottle of wine.

Income tax: No new hikes.

Tax expenditure measures: Reduction of 20 per cent in the rates of several business tax credits as well as the elimination or suspension of certain tax measures. Expected to result in spending reductions of $348 million.

Public sector: Hiring freeze through 2015-16; expected savings of $600 million over the two years.

Quote: "It's a serious budget because it's a serious situation." -- Finance Minister Carlos Leitao.

-With a file from The Canadian Press