Prepared in the context of a health crisis, the Legault government’s third budget focuses on three priorities: health, education and the economy.
As the Quebec government expected in the fall of 2020, the 2020-2021 deficit remains at $15B. After using the stabilization reserve, the current year’s deficit is $6.2B. For the next two years, the deficits are estimated to be $12.3B (2021-2022) and $8.5B (2022-2023), with the objective of balancing the budget in seven years, at the end of the 2027-2028 fiscal year. Since the deficits will continue for more than five years, the Balance Budget Act must be temporarily updated.
The underlying objective of those budget announcements is to avoid increasing taxes (individuals and corporations) and cutting back on public services. From an economic perspective, there are several noteworthy measures, including the three tax measures below.
Enhancing the investment and innovation tax credit (C3i)
In order to encourage businesses to accelerate their new technology investment projects, the government is announcing that the C3i rates will be doubled for a two-year period, that is, to December 31, 2022. That means the rates will go:
- from 10% to 20% for investments in the Montréal and Québec City metropolitan communities;
- from 20% to 40% for investments in territories where economic vitality is low;
- from 15% to 30% for investments in other territories or regions.
That temporary increase, which will cost close to $290M over five years, will help more than 10,000 businesses complete their investment projects more quickly.
Reducing the tax rate for SMEs
In the 2021-2022 budget, the government is announcing a reduction of the tax rate for all SMEs eligible for the small business deduction (SBD) from 4.0% to 3.2%, the same level as Ontario, starting March 26, 2021.
Improving the tax credit for on-the-job training
This five-year, $14.1M measure, combined with other measures to help young Quebecers integrate the job market, is part of initiatives totalling almost $97M, including $31.4M in 2022-2023, to support young people who are neither in studies, employment or training, in their integration into the labour market.
In terms of economic support, the 2021-2031 Quebec Infrastructures Plan (QIP) will be increased by $4.5B to $135B, together with a 60% increase in investments in the next five years, providing a powerful driver of economic vitality. The budget is also adding $404M over five years to support the requalification of workers and the integration of immigrants into the labour market. Additional support is being provided for culture and tourism with $392M and $204M respectively in new funds over five years. Furthermore, an additional envelope of $523M and $218M is being provided for economic development in the regions and innovation, respectively.
For more information on the tax measures announced in the 2021-2022 budget, please download our document.