By The Canadian Press

Trade war with United States pushes Quebec budget into record $13.6-billion deficit

Mar 25, 2025 | 1:00 AM

QUÉBEC — Against the backdrop of U.S. tariff threats, the Quebec government tabled a budget on Tuesday with a record $13.6-billion deficit and billions of dollars in new infrastructure spending to stimulate the economy.

Calling the budget a “complex exercise in uncertain times,” Finance Minister Eric Girard told a news conference in Quebec City that the trade war with the United States is expected to cut 0.7 percentage points from Quebec’s gross domestic product growth in 2025, limiting its rise to 1.1 per cent. Real GDP, adjusted for inflation, is expected to take a similar hit in 2026 because of the trade dispute, and rise by 1.4 per cent.

The 25 per cent tariffs that U.S. President Donald Trump has imposed on Canadian steel and aluminum, and his threats of more duties in April and beyond, have “already darkened Quebec’s economic outlook,” Girard said.

However, he warned that the province’s finances could get even worse. The budget assumes that the Americans will impose the equivalent of 10 per cent tariffs over the next two years, but Trump has threatened to slap across-the-board duties on Canadian goods as high as 25 per cent.

“We think that on average, tariffs will be about 10 per cent over two years — that’s the hypothesis,” Girard told reporters. “And it’s certain that on April 2, there is the threat of tariffs that are higher,” he said, referring to the day the Trump administration is expected to announce more duties on its trading partners.

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Girard didn’t explain what led him to assume the United States would settle on 10 per cent tariffs over two years, saying “economists have to make assumptions to make forecasts.”

Should tariffs rise in April to 25 per cent on all Canadian goods, Girard said Quebec would be thrown into a recession this year, with the economy shrinking by 0.1 per cent. If they were maintained at that level for two years, up to 100,000 jobs would be lost in the province.

“If there are tariffs of 25 per cent on all goods then there is a strong possibility there will be a recession across North America, not just in Quebec,” Girard said. However, he said it was not in the interest of the United States to impose tariffs for a long period. “In the end, we expect common sense to prevail,” he said.

To address the uncertainty caused by Trump’s mercurial trade policy, Quebec’s $165.8-billion budget includes $5.4 billion over five years for measures to stimulate the economy, including loans for businesses affected by U.S. tariffs and funding for a platform to make it easier for consumers to buy Quebec products.

But the major strategy to combat tariffs will come through spending on infrastructure, for which Girard has set aside an extra $11 billion over three years, bringing the total to $164 billion over 10 years. The money will help maintain and build infrastructure in the health-care, education and transportation sectors.

The deficit of $13.6-billion includes a payment of about $2.2 billion into a fund dedicated to reducing debt. Excluding that debt payment, the deficit is projected to be $11.4 billion, the highest in Quebec history, representing 1.8 per cent of GDP. But Girard said there were Quebec budgets in the 1990s that were significantly higher as a percentage of GDP. Quebec’s deficit for the 2024-25 fiscal year ending March 31, excluding payments into the debt fund, was $8.1 billion, an improvement of $700 million compared with initial projections.

Liberal finance critic Frederic Beauchemin called Girard and his party — the Coalition Avenir Québec — the “kings of deficits.”

“It’s a double failure,” he said of the budget, explaining that the government is causing the deficit to “explode” and failing to improve public services that are inadequate. “Everybody is complaining about services,” Beauchemin said.

Girard says his government can balance the budget by 2029-30, at the latest, by increasing Quebecers’ wealth, seeking additional transfers from the federal government and cutting costs in the delivery of public services.

Net debt compared to GDP will increase until 2027-28, due in part to the planned infrastructure investments. The province is also scaling back its net debt reduction target, to 35.5 per cent of GDP by 2032-33 from 33 per cent. Net debt is projected to be 38.7 per cent of GDP at the end of the current fiscal year.

The government says it can free up $3 billion over the next five years through what it calls improvements to the tax system. Tuesday’s budget includes a new tax credit for research and innovation, which is to replace eight existing tax credits and provide an additional $271.5 million over five years to businesses.

It also includes a new annual fee for owners of electric or plug-in hybrid vehicles in 2027 to contribute to road maintenance. The government also plans to end the exemption on bridge tolls and ferry charges for owners of electric vehicles.

The budget includes a $6.8-billion investment in services, including in health, education, and for supporting vulnerable people. Another $759 million is destined to help create wealth in the regions, including by leveraging critical and strategic minerals and diversifying the forestry sector.

This report by The Canadian Press was first published on March 25, 2025.

Morgan Lowrie, The Canadian Press