CPA Public Affairs
April 2019

QC: First CAQ budget hikes spending and promotes economic nationalism to reduce wealth gap

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Prepared by: Hatley Strategy Advisors
The much anticipated first budget of the new CAQ government was presented today in the National Assembly by Finance Minister Éric Girard. It was widely seen as a “good news” budget – a politician’s favourite synonym for “more spending”. 
This budget confirms that Premier François Legault’s nationalist government will not shy away from using the levers of the state to promote and protect Quebec companies as part of its efforts to increase wealth creation in Quebec and reduce the wealth gap between it and the other provinces.
This much shorter budget is a departure from the belt-tightening years of the Couillard Liberals. Spending in healthcare and education increased more than five per cent, made possible by a strong influx of revenues and federal transfers. The surplus this year is projected to hit a healthy $2.5 billion. 
A big surprise in the budget is the number of environmental measures announced. During and after the election, the CAQ was attacked for proposing few environmental measures; with this budget, they have tried to quell the criticism.
The highest profile of these environmental measures is the extension of the electric car subsidy program. However, there are certain caveats. The $3,000 subsidy for electric cars costing over $75,000 has been eliminated, and the maximum cost for electric vehicles to get an $8,000 subsidy was cut from $75,000 to $60,000, effectively excluded most luxury vehicles. The government has committed itself to review the entire program by 2021. 
Some good news for those who want to see a reduction of bureaucratic red tape: the government plans to hire more staff within the Environment Ministry to reduce the time required to authorize investment projects.
The budget also mentions that the carbon market is currently under review and new regulations are being prepared. This could have a major impact on large industrial emitters who are currently receiving free credits on a slow sliding scale until 2023. This should be on every industrial company’s radar. 
On the economic front, the CAQ has expressed its vision of economic nationalism by earmarking $1 billion to protect Quebec’s corporate head offices and assist in the development of strategic businesses in the province. How this fund will be deployed and operate will be announced at a later date by the Minister of Economy. The goal is to have the fund up and running by the end of 2019. 
The CAQ also plans crackdown on companies who are using abusive tax schemes, forbidding these companies from bidding on public contracts.
Legault and his ministers have mused about reforming Investissement Québec in order to make the province’s sovereign wealth fund more ambitious. The budget sets the cornerstone in that reform: IQ will be receiving an additional $1 billion in capital to take more equity and debt positions in Quebec projects and businesses. If you’re thinking of sitting down with IQ, now is the time to do it. 
Every year, it’s become an informal tradition for one industry to be chosen to receive a large amount attention and cash in the budget. This year, that industry is *drum roll* artificial intelligence. The government of Quebec has allocated $329.3 million to, among other things, speed up the adoption of artificial intelligence in Quebec companies. In addition, IVADO LABS, SCALE.AI and MILA are all going to receive government support. The goal is to consolidate Quebec’s leadership in the AI global ecosystem.
Finally, the government formally introduced reforms to Quebec’s subsidized daycare system, removing the sliding scale so all families, no matter their income, pay $9 per day by 2022. 
This budget sums up the CAQ’s vision for Quebec: economic nationalism with a focus on more social services. It’s the platform they got elected on and it’s what they believe they delivered today. Still, a lot of details are missing, and their upcoming announcements will be important to monitor for this reason.

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