Quebec Trims 2025-26 Deficit to C$12.4B, Boosts Generations Fund

Quebec's Fiscal Update: Deficit Cuts and Industry Support

Quebec Finance Minister Eric Girard announced revised fiscal projections, cutting the provincial deficit forecast for the 2025-26 fiscal year to C$12.4 billion. The province is also making a C$2.5 billion deposit into the Generations Fund, a reserve for future debt payments according to Bloomberg. These adjustments, the minister stated, reflect improved financial planning and reduced borrowing needs. The province is now on track to balance its budget by fiscal 2029-30, according to the update.

Girard's plan includes tax relief measures for workers and certain industries, such as a reduction in contribution rates to the Quebec Pension Plan and the Quebec Parental Insurance Plan.

The finance minister also announced a payroll tax holiday for the agriculture, forestry, and fishing sectors, which are struggling under U.S. tariffs. These initiatives are expected to cost C$8.3 billion over five years.

Quebec's real GDP growth for 2024 exceeded initial forecasts at 1.7%, but the province now expects a slower growth rate of 0.9% for 2025. The revised forecast reflects a cautious outlook amid global trade tensions and economic uncertainty.

Fiscal Relief and Industry Support

Quebec's updated fiscal plan aims to alleviate tax burdens on workers and key industries affected by U.S. tariffs. Starting January 2026, contribution rates to the Quebec Pension Plan and Quebec Parental Insurance Plan will be reduced. The move aligns with federal changes to the capital gains inclusion rate, which Quebec has mirrored in its own tax reforms.

The agriculture, forestry, and fishing sectors will receive C$290 million in support, including a temporary payroll tax holiday. These sectors have been particularly hard hit by U.S. tariffs, which have disrupted trade flows and reduced export revenues. Girard emphasized that these targeted measures will help stabilize the industries while the province seeks long-term solutions.

Market Reactions and Broader Economic Context

The revised deficit forecast and tax measures have been welcomed by some investors and analysts, who see them as steps toward fiscal responsibility. Meanwhile, other regions are also dealing with the economic fallout from U.S. tariffs. In India, for example, GDP growth for the July-September quarter was projected at 7.3%, supported by strong rural and government spending. However, economists note that private investment remains subdued, raising concerns about the sustainability of growth.

Canada itself is navigating similar challenges. Ontario and Alberta have seen rising delinquency rates, attributed in part to the impacts of tariffs on key manufacturing sectors. Quebec, while also affected, remains relatively better positioned, with lower delinquency and unemployment rates.

Risks and Uncertainty

Despite the positive fiscal adjustments, risks remain. The global economic landscape continues to be shaped by trade tensions and shifting monetary policies. In the U.S., President Donald Trump's proposed "tariff dividend" checks - offering Americans $2,000 in rebates from import tariffs - have been criticized as fiscally unsustainable. The plan, which would cost more than it generates in revenue, is seen as a politically motivated move rather than a sound economic strategy.

Meanwhile, the Federal Reserve faces its own challenges. Recent developments, including the resignation of a board member and a proposal to terminate another, have raised concerns about policy continuity and stability. These uncertainties add to the broader risk environment for markets and governments alike.

Quebec's fiscal update is one of several regional responses to a complex global economic environment. As governments adjust to trade tensions and economic volatility, the path to recovery and long-term growth remains uncertain. For now, Quebec's efforts to reduce its deficit and support key industries may offer a glimpse of how regions are adapting in this challenging climate.