INCREASING QUÉBEC AND CANADA’S ECONOMIC POTENTIAL

Calgary – May 2019

www.finances.gouv.qc.ca/en

ECONOMIC AND FISCAL POLICY DIRECTIONS

– Increase Québec’s economic potential by:‐ fostering labour market participation‐ spurring business investment

– Improve services and public infrastructure

– Maintain fiscal balance

– Reduce the debt burden

ECONOMY

Economic growth

QUÉBEC ECONOMIC GROWTH

1,6

0,9

1,4

2,8

2,11,8

1,5

2014 2015 2016 2017 2018 2019 2020

(real GDP, percentage change)

ECONOMY

Compound annual growth rate 2009‐2018

Real GDP: +1.4%

‒ Potential labour pool: +0.2%

‒ Employment rate: +0.7%

‒ Productivity: +0.5%

Household consumption expenditure

QUÉBEC HOUSEHOLD CONSUMPTIONECONOMY

1,6 1,5

2,4

3,2

2,62,0

1,5

2014 2015 2016 2017 2018 2019 2020

(percentage change, in real terms)

Wages and salaries(percentage change, in nominal terms)

2,7

1,82,2

4,85,2

3,2 3,1

2014 2015 2016 2017 2018 2019 2020

Average house price

HOUSING PRICES ARE LOWER IN QUÉBEC

0

400

800

1200

2008 2010 2012 2014 2016 2018

(thousands of dollars)

ECONOMY

983  Vancouver

759  Toronto

402  Montréal

279  Québec City

Real estate transactions by foreign buyers on the island of Montréal

FOREIGN BUYERS STILL HAVE A LIMITED PRESENCE IN QUÉBEC

1,71,4 1,3

1,10,9 1,0 1,1

1,41,7 1,6

2,52,9

3,4

2006 2008 2010 2012 2014 2016 2018

(percentage of total transactions)

ECONOMY

Household debt ratio

QUÉBEC HOUSEHOLD DEBT IS LOWER IN QUÉBEC THAN IN CANADA

167.2

183.0

154.6160.6162.2

189.1

214.0204.5

2010 2012 2014 2016

Canada Québec Ontario British Columbia

(per cent)

ECONOMY

Share of exports in Québec’s GDP, by destination

EXPORTS – AN IMPORTANT SHARE OF QUÉBEC’S GDP

(percentage of nominal GDP, 2018)

ECONOMY

10.8

20.1

3.8 3.3 1.6

7,7

Canada United States Europe Asia Other

38.7

ON

ROC

18.6

QUÉBEC IMPORTS OF OILECONOMY

Algeria

40.8%

Other

51.4%

Canada

7.9%

(per cent)

Sources of Québec’s crude oil supplies – 2017 (per cent)

Sources of Québec’s crude oil supplies – 2012

Algeria

10.3%

Canada

47.6%

Other

6.7%

United States

35.5%

The reversal of the flow of oil through 

Enbridge's 9B pipeline at the end of 2015 has 

contributed to an important increase in Québec’s crude oil 

imports from Alberta.

84

3830

55

‐1

37 36

90

39 3927

2010 2012 2014 2016 2018 2020

8.0 7.9 7.7 7.6 7.7 7.67.1

6.15.5 5.4 5.3

2010 2012 2014 2016 2018 2020

TIGHTENING LABOUR MARKET IN QUÉBEC

Job creation in Québec

ECONOMY

(thousands)

Unemployment rate in Québec(per cent)

46 616

91 768

55 410

110 059

54 348

107 480

Standard of living Productivity

Québec Canada Ontario17.1%

16.6%18.9% Gap

19.9% Gap

(1) Standard of living as measured by real GDP per capita and productivity as measured by real GDP per job.

STANDARD OF LIVING AND PRODUCTIVITY GAPS TO BE ELIMINATEDStandard of living and productivity, 2018(1) 

ECONOMY

(in constant 2012 dollars, gap in per cent)

↑ Investment in educa on + ↑ Labour market par cipa on +↑ Private investment + ↓ Debt = Wealth Creation 

FOUR PILLARS FOR INCREASING QUÉBEC’S ECONOMIC POTENTIAL ECONOMY

FIRST PILLAR: INVESTING IN EDUCATION, A TOP PRIORITY― Increase of 5.1% in 2019‐2020

― New initiatives: $2.4 billion over 5 years ‐ 4‐year‐old kindergartens‐ An extra hour a day in secondary schools ‐ Early detection of learning disabilities‐ Increased support for the teaching staff‐ Increased funding for CEGEPs and universities

ECONOMY

Budget 2019‐2020 provides $892 million over five years to extend the career of individuals aged 60 and over.

Enhanced tax credit for career extension (personal income tax)

New tax credit available to SMBs relating to payroll taxes for workers aged 60 and over.

Personalized path for new immigrants.

SECOND PILLAR: INCREASING LABOUR MARKET PARTICIPATION Employment rate for individuals aged 55 and over, 2018

ECONOMY

(per cent)72.2 71.8

48.553.1

10.3 13.4

Québec Canada

55 to 59

60 to 64

65 and over

Québec measures to stimulate business investment:

Accelerated depreciation measures (announced in the 2018 update).

These measures are in addition to the general corporate tax rate reductions previously announced. 

THIRD PILLAR: INCREASING BUSINESS INVESTMENT Investment in machinery and equipment per private‐sector job, 2018

ECONOMY

(current dollars)

4 449

6 055 5 920

Québec Canada Ontario

8,4%

13,8%

18,7% 18,4%

Québec – 2019 Canada – 2018 United States – 2018 OECD – 2018

Comparison of the marginal effective tax rate (METR) in Québec and that of selected territories

A FAVOURABLE FISCAL ENVIRONMENT FOR INVESTMENTS ECONOMY

INVESTMENTS IN ARTIFICIAL INTELLIGENCE AND PUBLIC INFRASTRUCTURE

― Stimulating innovation to create the jobs of tomorrow by:– investing in innovative projects;– speeding up the adoption of artificial intelligence.

― Investing in public infrastructure:– $115.4 billion over ten years;– 61% to replace outdated infrastructure.

ECONOMY

QUÉBEC’S ECONOMIC PROJECTS THAT BENEFIT WESTERN CANADA MARKETS

―Major economic projects promoting access tointernational markets for Western Canada’s naturalresources are being developed in Québec. For example:

‐ QCRail, which would allow resources from westernprovinces to be exported through the East;

‐ GNL Québec and Gazoduq’s project, which would allowthe transportation and liquefaction of natural gas forexport purposes.

ECONOMY

EXTENSION OF THE RAILWAY NETWORK

PREFERRED PLANNING AREA FOR THE GAZODUQ PROJECT

Source : Gazoduq

Budgetary balance(1), 2015‐2016 to 2023‐2024

FOURTH PILLAR: MAINTAINING A BALANCEDBUDGET…

(millions of dollars and as a percentage of GDP)

PUBLIC FINANCES

(1) Budgetary balance within the meaning of the Balanced Budget Act.

2 191(0.6)

2 361(0.6)

2 622(0.6)

2 500(0.6)

0(0.0)

0(0.0)

0(0.0)

100(0.1)

450(0.1)

2015‐2016

2016‐2017

2017‐2018

2018‐2019

2019‐2020

2020‐2021

2021‐2022

2022‐2023

2023‐2024

44.4 42.339.2 38.6

35.5 35.0 34.3 32.1

14.8 14.2

6.7

4035

N.L. Qué. Ont. N.B. Fed. N.S. Man. P.E.I. B.C. Sask. Alta. 2019 2024

… AND REDUCING THE DEBT BURDEN

Net debt of governments in Canada as at March 31, 2018

DEBT REDUCTION

(percentage of GDP)

Québec

48.2

46.145.3

44.6 44.143.4

42.3 41.9 41.5

2018 2019 2020 2021 2022 2023 2024 2025 2026

Objective achieved 5 yearsearlier than planned

MAINTENANCE OF DEBT REDUCTION OBJECTIVESGross debt as at March 31

DEBT REDUCTION

(as a percentage of GDP)

27.525.6

24.222.9

21.620.3

19.017.7

16.4

25.823.4

22.120.8 19.6

18.317.0 15.7 14.5

2018 2019 2020 2021 2022 2023 2024 2025 2026

With the addition of the stabilization reserve Without the addition of the stabilization reserve

Objective achieved

MAINTENANCE OF DEBT REDUCTION OBJECTIVES (cont.)Debt representing accumulated deficits as at March 31

DEBT REDUCTION

(percentage of GDP)

THE GENERATIONS FUND

The Generations Fund was initially set up in 2006.

― Under the law, the sole purpose of the Fund is to repay the debt.

― The law sets out dedicated revenues that are deposited in the Fund every year.

― All income generated from the Fund must be reinvested into it.

― An amount of $8 billion from the Generations Fund has been used in 2018‐2019 and $2 billion will be used in 2019‐2020 to repay the debt and lower the debt service.

DEBT REDUCTION

Use of the Generations Fund to repay the debt

THE GENERATIONS FUNDDEBT REDUCTION

2018‐2019

2019‐2020

2020‐2021

2021‐2022

2022‐2023

2023‐2024

Book value, beginning of year 12 816 7 922 8 426 11 110 14 057 17 317

Dedicated revenues 3 106 2 504 2 684 2 947 3 260 3 582

Use of the Generations Fund to repay the debt ‐8 000 ‐2 000 ─ ─ ─ ─

Book value, end of year 7 922 8 426 11 110 14 057 17 317 20 899

(millions of dollars)

Government’s financing program(1)

FINANCING PROGRAMS

15 600

3 796

17 398

24 08022 951 21 997

2018‐2019 2019‐2020 2020‐2021 2021‐2022 2022‐2023 2023‐2024

(millions of dollars)

FINANCING

(1) Fiscal year starts April 1st.(2) As at May 15, 2019.

32.2%(2)

completed

11 782

BENCHMARKS IN CANADAFINANCING

Coupon(%)

Date ofissue

Date ofmaturity

Outstanding(1)(M$)

4.50 2010 2020 6 4004.25 2011 2021 7 5003.50 2011 2022 6 9003.00 2012 2023 6 370

5‐year benchmark 3.75 2013 2024 6 0002.75 2015 2025 6 0002.50 2016 2026 6 0002.75 2017 2027 6 0002.75 2018 2028 6 000

10‐year benchmark 2.30 2019 2029 1 0006.25 2000 2032 4 2005.75 2003 2036 4 0835.00 2006 2038 5 0005.00 2009 2041 9 2004.25 2011 2043 7 5003.50 2013 2045 10 0003.50 2015 2048 11 000

30‐year benchmark 3.10 2019 2051 2 000

(1) As at May 15, 2019.

31 benchmarks in US dollars and euros since 2001

BENCHMARKS IN US DOLLARS AND EUROSFINANCING

US$ Euros2019‐2020 1.00 B – April 2019 (5Y)

2018‐2019 1.00 B – July 2018 (10Y)

2017‐2018 1.25 B – Sept. 2017 (3Y FRN)1.25 B – April 2017 (10Y)

2.25 B – May 2017 (10Y)

2016‐2017 2.00 B – January 2017 (5Y)1.00 B – July 2016 (3Y FRN)2.00 B – April 2016 (10Y)

2015‐2016 1.20 B – Sept. 2015 (3Y FRN) 1.10 B – October 2015 (10Y)

2014‐2015 1.60 B – October 2014 (10Y) 1.75 B – January 2015 (10Y)

2013‐2014 1.00 B – January 2014 (10Y)1.00 B – July 2013 (10Y)

GREEN BOND PROGRAM

Québec has set up a Green Bond program in February 2017– Québec has issued four times under this program

‐ 500M $CAD with a 5‐year maturity (March 3, 2022)‐ 500M $CAD with a 5‐year maturity (March 1, 2023)‐ 500M $CAD with a 7‐year maturity (July 6, 2025)‐ 800M $CAD with a 5‐year maturity (February 22, 2024)

‐ All issues were done under a global documentation

– These Green Bond issues will finance public transit projects, mainly the purchase of new Azur métro cars in Montréal and the construction of an automated light rail network in the Greater Montréal area (REM)

– Québec is a regular issuer of Green Bondshttp://www.finances.gouv.qc.ca/en/RI_GB_Green_Bonds.asp

– CICERO: Awarded a dark green rating on the framework

FINANCING

QUÉBEC’S CREDIT RATINGSCREDIT RATINGS

2019

Agency CreditRating Outlook 

Moody’s Aa2 Stable

Standard & Poor’s (S&P) AA– Stable

Fitch AA– Stable

DBRS A (high) Stable

Japan Credit Rating Agency (JCR) AA+ Stable

China Chengxin International (CCXI) AAA Stable

BUDGET 2019‐2020

― An ambitious economic agenda

― Québec’s situation remains strong

― The economy continues to grow

― The financial framework is balanced

― The debt burden is constantly decreasing

― Budget 2019‐2020 includes measures to stimulate Québec’s economic growth beyond its 1.3% potential 

CONCLUSION

ADDITIONAL INFORMATION

Québec’s real GDP by sector in 2018

A MODERN AND DIVERSIFIED ECONOMYECONOMY

Services: 72.4%Unprocessed natural resources: 4.3%

Construction: 6.4%– Finance, insurance, 

real estate and leasing: 17.4%

– Education and health: 14.2%

– Trade: 11.4%

– Government services: 7.3%

– Professional, scientific and technical services: 6.2%

– Transportation and warehousing: 4.2%

– Other: 11.7%

Manufacturing: 13.5%– Food, beverages and 

tobacco: 2.4%

– Metallic products and primary metal processing: 2.3%

– Transportation equipment: 2.0%

– Wood and paper: 1.4%

– Chemical products and petroleum derivatives: 1.2%

– Other: 4.2%

Utilities: 3.5%

HYDRO‐QUÉBEC & PLAN NORDECONOMY

― Hydro‐Québec’s electricity is produced almostexclusively through hydropower, a clean andrenewable source of energy which allows Québecto produce the lowest level of GHG emissions inCanada with regard to electricity production.

― The Plan Nord territory covers 72% of Québec’sgeographic area.

― Approximately $2.7 billion will be invested overa 25‐year period to support large‐scale strategicdevelopment projects.

― Many active mines and mining projects that couldgenerate nearly $7 billion in investments over thenext few years.

― $1 billion through the Mining and HydrocarbonCapital Fund ($500 million for projectsimplemented on the Plan Nord territory).

Net interprovincial migration

NET INTERPROVINCIAL MIGRATION

‐6 8001 4387 799

‐9 199‐9 083‐20 000

‐10 000

 0

10 000

20 000

30 000

40 000

50 000

2006‐2007 2008‐2009 2010‐2011 2012‐2013 2014‐2015 2016‐2017

Québec Alberta British Columbia Manitoba Saskatchewan

(in persons)

ECONOMY

Equalization payments, 2019‐2020

EQUALIZATION PAYMENTSPUBLIC FINANCES

(millions of dollars)

Equalization payments, 2019‐2020(dollars per capita)

13 124

2 255 2 023 2 015419

Qué. Man. N.B. N.S. P.E.I.

2 8332 650

2 134

1 712 1 593

P.E.I. N.B. N.S. Man. Qué.

Consolidated revenue, 2019‐2020

CONSOLIDATED REVENUE

(per cent)

PUBLIC FINANCES

Personal income tax

28.1%

Federal transfers

21.6%Consumption taxes

18.9%

Duties, permits and miscellaneous revenue

12.9%

Corporate taxes

7.4%

Contribution for health services

5.7%

Government enterprises

4.1%School property tax

1.3%

(1) Excluding debt service.

Consolidated expenditure(1) by portfolio, 2019‐2020

CONSOLIDATED EXPENDITURE BY PORTFOLIO

(per cent)

PUBLIC FINANCES

Health and Social Services

43.7%

Education and Higher Education

23.5%

Families

6.0%

Labour, Employment and Social Solidarity

5.0%

Other portfolios

21.8%

2018‐2019  2019‐2020 2020‐2021

Own‐source revenue  90 146 4.9% 90 714 0.6% 93 789 3.4%

Federal transfers Consolidated revenue

23 411 4.1% 24 924 6.5% 25 600 2.7%113 557 4.8% 115 638 1.8% 119 389 3.2%

Portfolio expenditures –99 052 5.1% –104 038 5.0% –107 467 3.3%

Debt service Consolidated expenditure

–8 899 –3.7% –8 996 1.1% –9 138 1.6%–107 951 4.3% –113 034 4.7% –116 605 3.2%

Contingency reserve — –100 –100

SURPLUS 5 606 2 504 2 684

Deposit of dedicated revenues in the Generations Fund –3 106 –2 504 –2 684

BUDGETARY BALANCE 2 500 — —

Consolidated financial framework

A BALANCED FINANCIAL FRAMEWORKPUBLIC FINANCES

(millions of dollars, percentage change)