Quebec Budget: Doing more with less to drive economic growth

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Quebec Parliament building in Quebec city in a sunny day, Canada
Expert Opinion
March 26, 2024

On March 12th, Quebec Finance Minister, M. Eric Girard presented the provincial government’s budget for 2024-2025. The budget was already expected to showcase a deficit, estimated at $3 billion, but due to raising costs and a stagnant economy, the announced $11 billion deficit forecasted for the next fiscal year will be the largest in the history of the province. Gross Domestic Product (GDP) in Quebec is estimated to grow by only 1.7% in 2024, a dismal forecast that outlines the impact of Quebec’s ongoing challenges around labor, productivity, and lack of capital investments.

While the provincial government has expressed its determination to continue efforts to stimulate the economy with local investments, following this news many anticipate significant cuts to economic development funds because of the current economic volatility. Short term, this situation will mostly impact government grant programs, and in the longer term, income tax credits. Some minor changes were already announced to the e-business tax and multimedia tax credits to be applied over the next several years, however, Quebec seems mostly focused on income tax incentives for stimulating investments, innovation, and productivity growth.

Quebec’s budget announcement comes shortly after two separate research studies have been published, one by University of Sherbrooke and one by the HEC Montreal, highlighting the lack of tangible results of the provincial business tax incentives and economic policies for the past 25 years. The authors of the studies are highly critical of the fiscal measures currently in place (often subsidizing unprofitable or failing companies), especially when it comes to income tax credits, including the e-business tax credit.

Unfortunately, a noticeable absence from both studies is an analysis of the economic benefits and results generated through government grants. The past decade has seen a sharp increase in government spending related to grants programs, which are also referred to as direct financial assistance programs. The lack of measurable data on results related to direct assistance grants is the primary reason offered for the lack of insight on the topic.

This is unfortunate, because based on our experience spanning over a decade, supporting businesses of all sizes, from start-ups to multinationals, operating in various industries, from farmers to software development firms, government grants are the most effective tool in the government’s arsenal to generate sustainable economic growth in targeted sectors. In fact, direct assistance programs have demonstrated several important benefits when compared to income tax credits:

  • A predetermined budget: governments can determine the exact amount of funds they wish to make available to support projects in a specific sector and close the program when the funds run out.
  • A competitive process: grant authorities analyse proposed projects and select the best applications based on their economic impacts prior to project approval, enabling them to maximize the economic impacts generated by the funds available.
  • Due diligence: grants offer the ability to review key aspects of an applicant’s business and project prior to allocating funding, including their business plan, their financial statements, the expertise and experience of their team, and their structure of ownership.
  • Built-in audit process: for most government grant programs, companies approved for grant funding must provide progress reports, invoices and proof of payment related to the expenses submitted in their grant applications, which allows for a complete audit of the supporting documentation before any payment is made.
  • Pin-point precision funding: grants programs can be made to target specific regions, or specific types of companies in specific industries much more easily than income tax credits, enabling pin-point precision in how governments inject funds into specific low economic vitality regions or in industries facing large disruptions, due to external factors such as legislation changes, for example.

In summary, we see a lot of opportunities for future budgets to make more significant use of grant programs in order to make better use of the available funds to accelerate investments and improve productivity in Quebec.  In an effort to do more with less, we believe direct funding programs (grants) should be leveraged to a greater extent to maximize the impact of every dollar invested into economic growth.

At Ayming, we have always been inspired by a vision of helping companies achieve sustainable growth and success while enriching the lives of their employees, customers, and communities through our support and actions. Our team is ready to help if you’d like guidance and support to help maximize government funding and accelerate your growth.

Written by:

Frederic Pontbriand
Eastern Grants Manager

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