Financement et gestion de la dette AUSTRALIAN STOCK EXCHANGE FILING Date : October 31, 2016 Document filed : Excerpts from The Quebec Economic Plan October 2016 Update, October 25, 2016 Description : Highlights section Section C The Québec Economy: Recent Development and Outlook for 2016 and 2017 Consolidated Financial Statements (volume 1 of the Public Accounts) of Québec for the fiscal year ended March 31, 2016 For more information, please contact Ms. Julie Simard at (418) 643-8887 julie.simard@finances.gouv.qc.ca Mr. Pierre-Luc Chouinard at (418) 643-8206 pierre-luc.chouinard@finances.gouv.qc.ca Ms. Marjolaine Dion at (418) 643-4469 / (418) 643-8141 marjolaine.dion@finances.gouv.qc.ca 12, rue Saint-Louis Québec (Québec) G1R 5L3 Téléphone : (418) 643-8141 Télécopieur : (418) 528-0984
Exhibit 99.8 HIGHLIGHTS Highlights... 3 2015-2016: A $2.2 billion surplus recorded... 4 A balanced budget in 2016-2017 and subsequent years... 5 Acceleration in economic growth in Québec... 6 Québec Economic Plan: Additional investment of $2.2 billion in services... 9 $300 million more per year for health... 10 $110 million more per year for education and higher education... 11 $100 million more per year to support regional economic development... 12 Additional investments of $400 million in public infrastructure... 13 Complete elimination of the health contribution as of January 1, 2017... 14 $610-million reduction in the gross debt in 2015-2016... 15 1
HIGHLIGHTS The October 2016 Update of the Québec Economic Plan is an opportunity for the government to report on its economic and financial initiatives. The update reflects the latest information on the economic situation and the government s revenue and expenditure. 1 In particular, it: confirms a balanced budget as at March 31, 2016. A $2.2-billion surplus was recorded in the Public Accounts 2015-2016; includes an enhancement of the Québec Economic Plan. In view of the improved financial situation, the government is: strengthening the funding of public services through additional investments in health, education and infrastructure to spur economic and regional development, easing the tax burden on taxpayers by eliminating the health contribution completely on January 1, 2017. continues reducing the debt. CHART 1 Budgetary balance (1) from 2009-2010 to 2017-2018 (millions of dollars) 2 191 0 0 1 600 1 143 (2) 3 607 2009-2010 3 150 2010-2011 2 628 2011-2012 2012-2013 2 824 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 (1) Budgetary balance within the meaning of the Balanced Budget Act. (2) Budgetary balance excluding the impact of accounting changes. The budgetary balance including accounting changes totalling $418 million is a deficit of $725 million. 1 Unless otherwise indicated, this document is based on the data available as at October 6, 2016. Highlights 3
2015-2016: A $2.2 BILLION SURPLUS RECORDED The results published in the Public Accounts 2015-2016 confirm the achievement of a balanced budget. A $2 191-million surplus was recorded for 2015-2016. The improvement relative to the March 2016 forecasts reflects the economy s good performance and stems mostly from one-off, or non-recurring, factors. This is attributable to: higher-than-expected own-source revenue owing, in particular, to the completion of processing of personal income tax returns and more robust corporate results recorded at fiscal year-end; lower spending as a result of one-off factors; for example, non-utilization of the Contingency Fund, sums not spent because of strike days, and one-off savings of certain government funds and bodies, such as school board surpluses; non-utilization of the contingency reserve. TABLE 1 Actual results in 2015-2016 relative to Budget 2016-2017 (millions of dollars) 2015-2016 Budget 2016-2017 Adjustments Consolidated revenue Actual results Own-source revenue excluding government enterprises 75 370 839 76 209 Government enterprises 4 961 52 5 013 Federal transfers 19 089 188 18 901 Total Consolidated revenue 99 420 703 100 123 % change 3.6 4.4 Consolidated expenditure Program spending 66 460 829 65 631 Other consolidated expenditure (1) 21 174 335 20 839 Mission expenditures 87 634 1 164 86 470 % change 2.5 1.1 Debt service 10 055 46 10 009 Total Consolidated expenditure 97 689 1 210 96 479 % change 2.0 0.7 Contingency reserve 300 300 SURPLUS (DEFICIT) 1 431 2 213 3 644 BALANCED BUDGET ACT Deposits of dedicated revenues in the Generations Fund 1 431 22 1 453 BUDGETARY BALANCE (2) 2 191 2 191 (1) Including consolidation adjustments. (2) Budgetary balance within the meaning of the Balanced Budget Act. The Québec Economic Plan 4 October 2016 Update
A BALANCED BUDGET IN 2016-2017 AND SUBSEQUENT YEARS The government s consolidated financial framework presents a balanced budget in 2016-2017 and for subsequent years. Overall, expenditure will remain equal to revenue. In 2016-2017, consolidated revenue will be $102.3 billion, for 2.2% growth, and consolidated expenditure will stand at $100.2 billion, for 3.8% growth. For 2017-2018, consolidated revenue growth will be 2.7% and consolidated expenditure growth, 2.3%. The government will keep the budget balanced while continuing to make deposits of dedicated revenues in the Generations Fund. Deposits will total $2.0 billion in 2016-2017 and $2.5 billion in 2017-2018. TABLE 2 Consolidated summary financial framework October 2016 Update (millions of dollars) 2016-2017 2017-2018 2018-2019 Own-source revenue 82 070 84 271 86 800 % change 1.0 2.7 3.0 Federal transfers 20 264 20 828 21 448 % change 7.2 2.8 3.0 Consolidated revenue 102 334 105 099 108 248 % change 2.2 2.7 3.0 Mission expenditures 90 138 92 346 94 904 % change 4.2 2.4 2.8 Debt service 10 047 10 149 10 376 % change 0.4 1.0 2.2 Consolidated expenditure 100 185 102 495 105 280 % change 3.8 2.3 2.7 Contingency reserve 150 150 150 SURPLUS (DEFICIT) 1 999 2 454 2 818 BALANCED BUDGET ACT Deposits of dedicated revenues in the Generations Fund 1 999 2 454 2 818 BUDGETARY BALANCE (1) (1) Budgetary balance within the meaning of the Balanced Budget Act. Highlights 5
ACCELERATION OF ECONOMIC GROWTH IN QUÉBEC Québec is enjoying favourable economic conditions: sound public finances are bolstering consumer and business confidence; The Index of Consumer Confidence, measured by the Conference Board of Canada, is at its highest level since 2007. For the first time in 16 years, Québec businesses are the most confident among all the provinces, according to the Canadian Federation of Independent Business. job creation is continuing, particularly full-time employment and private-sector jobs; In the first nine months of 2016, Québec created the second-highest number of full-time jobs of all the provinces. low oil prices benefit consumers and the Québec manufacturing sector, while the low dollar boosts exports. These conditions will translate to an acceleration in economic growth in Québec. Following 1.1% growth in real gross domestic product (GDP) in 2015, the October 2016 Update of the Québec Economic Plan forecasts economic growth of 1.4% in 2016 and 1.5% in 2017. This means that 2016 will be the seventh consecutive year of economic growth since the 2008-2009 recession. CHART 2 Economic growth in Québec (real GDP, percentage change) 1.4 1.5 1.1 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan 6 October 2016 Update
Confidence in the Québec economy is increasing Several indicators show that consumer and investor confidence is getting stronger. Job creation continued in 2016, with job gains mainly in full-time employment and the private sector. Compared to the same period in 2015, 44 200 full-time jobs and 30 500 jobs in the private sector were created in the first nine months of 2016. The robust job creation has fuelled consumer spending. In the first two quarters of 2016, household consumption expenditure rose by 1.8% in real terms, outstripping GDP growth. The strong labour market was reflected in consumer confidence. The Index of Consumer Confidence, measured by the Conference Board of Canada, stood at 129.0 points in Québec in September, a record high since 2007. Furthermore, responsible management of public finances and the Québec government s sound financial position boosted business confidence. In September 2016, Québec businesses were the most optimistic among the provinces for the first time in 16 years, according to the Canadian Federation of Independent Business Business Barometer Index. Moreover, the optimism of small businesses spurred an upturn in business investment. Non-residential business investment in real terms was 0.5% higher in the second quarter of 2016 than in the previous quarter. TABLE 3 Change in selected economic indicators in Québec (percentage change in real terms, unless otherwise indicated) 2016 Q1 Q2 Q3 (1) 2015 2016 (1) Real GDP 0.7 0.2 n/a 1.1 1.3 Creation of full-time jobs (thousands) 14.6 19.2 0.7 45.0 44.2 Household consumption 0.8 0.2 n/a 1.3 1.8 Consumer confidence (points, 2014 = 100) 94.3 115.6 127.8 102.8 112.6 Business confidence (points) 64.2 61.4 65.4 57.9 63.6 (1) Cumulative for available periods. Sources: Institut de la statistique du Québec, Statistics Canada, Conference Board of Canada and Canadian Federation of Independent Business. Highlights 7
Good employment performance since May 2014 Québec s labour market has performed well since May 2014. Statistics Canada s monthly Labour Force Survey shows that 127 800 jobs have been created in Québec since May 2014, including: 125 200 full-time jobs, 98% of the total job creation; 97 600 jobs in the private sector, 76% of the total job creation. Québec stands apart from the rest of Canada in that it contributed nearly 50% of the private-sector jobs created in Canada as a whole. Québec ranks first among the provinces, ahead of Ontario and British Columbia, in the number of jobs created in the private sector. Private-sector jobs created since 2014, Canada (thousands) 97.6 70.8 63.0 6.8 3.6 0.8-0.6-1.6-6.1 QC ON BC NB MB SK PE NL NS AB Source: Statistics Canada. -36.6 The Québec Economic Plan 8 October 2016 Update
QUÉBEC ECONOMIC PLAN: ADDITIONAL INVESTMENTS OF $2.2 BILLION IN SERVICES The improvement in Québec s financial situation enables the government to announce additional investments of over $900 million in 2017-2018, reaching $2.2 billion within the next three years. In particular, the government is announcing: an immediate increase of over $500 million over a full year in funding for new public services: $300 million for health, $110 million for education, $100 million for regional economic development; $400 million more for public infrastructure investment. In addition, the government is announcing that the health contribution will be completely eliminated ahead of schedule, on January 1, 2017, for another $253 million. Overall, elimination of the health contribution will reduce the tax burden on Québec taxpayers by $759 million a year. TABLE 4 Additional investments from 2016-2017 to 2019-2020 October 2016 Update (millions of dollars) Strengthening of funding for public services 2016-2017 2017-2018 Cumulative (1) Health and social services 100 300 1 000 Education and higher education 35 110 365 Regional economic development 100 100 400 Increase in the Québec Infrastructure Plan 400 400 Subtotal 235 910 2 165 A Complete elimination of the health contribution as of January 1, 2017 53 179 253 TOTAL 288 1 089 2 418 (1) From 2016-2017 to 2019-2020. Highlights 9
$300 MILLION MORE PER YEAR FOR HEALTH The government has undertaken a major reform aimed at improved access to health care and social services and better organization of these services. The October 2016 Update provides for immediate additional investments of $300 million on an annual basis in health and social services. These investments will go to improving access to, and the quality of, health and social services, particularly in the following areas: home care; Increase the services available to persons suffering a loss of functional independence. residential and long-term care centres; Improve residential standards and the care provided in residential and long-term care centres (CHSLDs). intermediate care. Improve the offering of intermediate care services. With these additional investments, spending growth in the Santé et Services sociaux portfolio will reach 3.0% in 2017-2018, an increase of 0.6 percentage point over Budget 2016-2017. TABLE 5 Santé et Services sociaux Program spending (millions of dollars) 2015-2016 2016-2017 2017-2018 Actual results Budget (1) October (1) Budget 2016-2017 (1) Change 2016 (1) 2016-2017 Change October 2016 Health and social services 32 760 33 739 (1) 100 33 839 (1) 34 564 300 34 864 % change 1.6 3.0 (1) 3.3 (1) 2.4 3.0 (1) Excluding transfers from the provision for francization of the Ministère de l Immigration, de la Diversité et de l Inclusion. The Québec Economic Plan 10 October 2016 Update
$110 MILLION MORE PER YEAR FOR EDUCATION AND HIGHER EDUCATION To build on the efforts made, the October 2016 Update provides for additional investments of $35 million in 2016-2017 and $110 million in 2017-2018 and 2018-2019 to add new education and higher education services. For example, these new investments will be aimed at: increasing academic success for elementary and secondary students; continuing efforts to tailor vocational training to labour market needs; improving continuing education programs by offering short course skills training aligned with regional characteristics and issues; developing bridging programs for professionals trained abroad and facilitating recognition of skills and experience for faster integration into the labour market; supporting the college and university networks in developing measures to assist special needs students; supporting the promotion, recruitment and retention of foreign students in the higher education networks; improving funding for Québec sports federations and ensuring greater predictability. These additional investments will bring spending growth for the Éducation et Enseignement supérieur portfolio to 3.5% in 2017-2018, which represents an increase of 0.5 percentage point relative to Budget 2016-2017. TABLE 6 Éducation et Enseignement supérieur Program spending (millions of dollars) 2015-2016 2016-2017 2017-2018 Actual results Budget ) 2016-2017 ) Change October 2016 ) Budget 2016-2017 Change October 2016 Education and higher education 16 603 17 245 35 17 280 17 769 110 17 879 % change 0.8 (1) 4.4 (2) 4.6 (2) 3.0 3.5 (1) Excluding the impact of strike days. (2) Excluding transfers from the provision for francization of the Ministère de l Immigration, de la Diversité et de l Inclusion. Highlights 11
$100 MILLION MORE PER YEAR TO SUPPORT REGIONAL ECONOMIC DEVELOPMENT The October 2016 Update provides for immediate additional investments of $100 million annually to support regional economic development. The additional investments will total $400 million over four years. TABLE 7 Support for regional economic development (millions of dollars) 2016-2017 2017-2018 2018-2019 2019-2020 Total Additional investments 100 100 100 100 400 Through these new amounts, the government will offer the regions, including the Capitale-Nationale region and the region of the metropolis, further financial means to support their economic development. The $100 million made available as of 2016-2017 will enhance the government s actions to foster the regions outreach and the carrying out of economic development projects in Québec s regions. In subsequent years, the amounts will enable the government to, among other things, put in place two priority measures for the regions: specific support for the regions to take charge of their economic development without the creation of new administrative structures; encourage regional tourism, particularly through festivals and events. The other regional economic development initiatives to be funded through these new amounts will be announced soon by the government. The Québec Economic Plan 12 October 2016 Update
ADDITIONAL INVESTMENTS OF $400 MILLION IN PUBLIC INFRASTRUCTURE To meet Québec s needs respecting quality public infrastructure, the government will maintain a high level of public capital investment under the Québec Infrastructure Plan (QIP). Capital investments are expected to be $10.0 billion in 2017-2018, an increase of $400 million over the investments forecast in March 2016. TABLE 8 Level of investment under the QIP in 2017-2018 (billions of dollars) 2017-2018 Investments planned under the 2016-2026 QIP 9.6 Increase in investments 0.4 Investments planned under the 2017-2027 QIP 10.0 2017-2027 Québec Infrastructure Plan The government is announcing investments of $89.1 billion under the 2017-2027 QIP. These investments will be earmarked first and foremost for the replacement of outdated infrastructure, economic development projects and sports infrastructure. In this context, the Sports and Physical Activity Development Fund will see its envelope increased. The government is therefore confirming that, to meet Québec s needs, high levels of capital investment will be maintained, without losing sight of taxpayers ability to pay and the debt reduction objectives. CHART 3 Investments under the 2017-2027 Québec Infrastructure Plan (billions of dollars) QIP 2017-2027: 89.1 8.9 9.2 9.6 9.6 10.0 9.6 9.0 8.9 8.6 8.6 8.6 8.6 8.6 8.6 2.8 4.5 Av. 97-98 to 01-02 Av. 02-03 to 06-07 Av. 07-08 to 13-14 2014-2015 2016-2017 2018-2019 2020-2021 2022-2023 2024-2025 2026-2027 Highlights 13
COMPLETE ELIMINATION OF THE HEALTH CONTRIBUTION AS OF JANUARY 1, 2017 The October 2016 Update of the Québec Economic Plan eases the tax burden on individuals by completely eliminating the health contribution as of January 1, 2017, two years ahead of schedule. A total of nearly 4.5 million Québec taxpayers will see their tax burden reduced by $759 million annually. This measure will especially ease the tax burden on low- and middle-income households. These households alone will benefit from 83% of the total tax relief stemming from the elimination of the health contribution. TABLE 9 Tax relief stemming from the elimination of the health contribution Net income Number of taxpayers affected Maximum reduction granted ($) Tax relief ($million) $18 705 to $41 560 (1) 2 114 189 100 196 $41 560 to $135 060 2 197 338 200 433 Over $135 060 148 782 1 000 130 TOTAL 4 460 309 759 83% 17% (1) Taxpayers with income below $18 705 are exempt from the health contribution. The Québec Economic Plan 14 October 2016 Update
$610-MILLION REDUCTION IN THE GROSS DEBT IN 2015-2016 As at March 31, 2016, the gross debt was down in absolute terms. The gross debt recorded as at March 31, 2016 was $610 million lower than the level recorded at March 31, 2015 and stood at $203.3 billion. A similar situation had not been seen since 1959. This outcome results from a combination of restored fiscal balance and the deposits made in the Generations Fund. CHART 4 Annual change in Québec s gross debt as at March 31 (millions of dollars) 12 000 10 000 8 000 6 000 4 777 4 720 5 688 10 118 9 948 8 482 5 941 6 150 $610-million reduction in the gross debt as at March 31, 2016 4 000 2 000 0 2 834 3 289-2 000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 610 The gross debt will rise over the coming years, particularly because of capital investments, but its weight in the economy will continue to decline. TABLE 10 Gross debt of the Québec government as at March 31 (millions of dollars) 2015 2016 2017 2018 2019 2020 2021 GROSS DEBT 203 957 203 347 208 061 211 838 213 619 213 770 214 138 % of GDP 55.1 53.8 53.7 52.9 51.6 50.0 48.6 Highlights 15
Exhibit 99.8 Section C C THE QUÉBEC ECONOMY: RECENT DEVELOPMENTS AND OUTLOOK FOR 2016 AND 2017 1. The economic situation in Québec... C.3 1.1 Acceleration in economic growth... C.3 1.2 Growth driven by consumption and a recovery in investment... C.8 1.3 Continued job creation... C.9 1.4 Household consumption expenditure, the main driver of economic growth... C.12 1.5 Recovery in investment is underway... C.14 1.6 Québec exports remain at record highs... C.19 1.7 Change in nominal GDP... C.25 1.8 Comparison with private sector forecasts... C.26 1.9 Five-year economic outlook for 2016-2020... C.28 2. The situation of Québec s main economic partners...c.29 2.1 The economic situation in Canada... C.30 2.2 The economic situation in the United States... C.38 3. Evolution of financial markets...c.49 4. The international economic context...c.55 5. Changes in the prices of the main metals in Québec...C.61 6. Main risks that may influence the forecast scenario...c.65 C.1
SECTION For personal use only 1. THE ECONOMIC SITUATION IN QUÉBEC C 1.1 Acceleration in economic growth Québec is enjoying favourable economic conditions: sound public finances are bolstering consumer and business confidence; The Index of Consumer Confidence, measured by the Conference Board of Canada is at its highest level since 2007. For the first time in 16 years, Québec businesses are the most optimistic among all the provinces, according to the Canadian Federation of Independent Business. job creation is continuing, particularly full-time employment and private-sector jobs; In the first nine months of 2016, 44 200 full-time jobs were created. low oil prices are benefiting consumers and the Québec manufacturing sector, while the low dollar is boosting exports. These conditions will translate to an acceleration in economic growth in Québec. Following 1.1% growth in real gross domestic product (GDP) in 2015, the October 2016 Update of the Québec Economic Plan forecasts an economic growth rate of 1.4% in 2016 and 1.5% in 2017. This means that 2016 will be the seventh consecutive year of economic growth since the 2008-2009 recession. CHART C.1 Economic growth in Québec (real GDP, percentage change) 1.4 1.5 1.1 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.3
Acceleration in growth in Québec despite a slowdown among its main partners Relative to the Québec Economic Plan of March 2016, growth forecasts in the October 2016 Update have been adjusted downwards slightly for most countries and regions of the world owing to developments in the global economy. In Québec, real GDP growth is expected to accelerate from 1.1% in 2015 to 1.4% in 2016 and 1.5% in 2017. These are downward adjustments of 0.1 percentage point (pp) relative to the forecasts in the Québec Economic Plan of March 2016. The adjustments are not as big as those made to the outlook for Canada and the United States. In Canada, economic growth is projected to remain at 1.1% in 2016, the same pace as in 2015. The negative impacts of low oil prices are felt by oil-producing provinces in particular. In 2017, Canada s real GDP growth is expected to be 1.9%. These are downward adjustments of 0.2 pp for 2016 and 2017 relative to the forecast in the Québec Economic Plan of March 2016. In the United States, after expanding by 2.6% in 2015, the economy is projected to slow to 1.5% growth in 2016 and accelerate to 2.1% in 2017. The U.S. economy saw a disappointing first-semester performance in 2016. Growth forecasts have been revised downward by 0.8 pp for 2016 and 0.2 pp for 2017. TABLE C.1 Economic growth outlook (real GDP, percentage change and percentage point adjustment relative to the Québec Economic Plan of March 2016) Québec 2015 2016 2017 October 2016 Update 1.1 1.4 1.5 Adjustment 0.1 0.1 Canada October 2016 Update 1.1 1.1 1.9 Adjustment 0.2 0.2 United States October 2016 Update 2.6 1.5 2.1 Adjustment 0.8 0.2 World October 2016 Update 3.2 3.0 3.2 Adjustment 0.1 0.1 Sources: Institut de la statistique du Québec, Statistics Canada, IHS Global Insight and Ministère des Finances du Québec. The Québec Economic Plan C.4 October 2016 Update
Economic growth translated to continued improvement in Quebecers standard of living For personal use only SECTION C Québec s economic growth in recent years has driven steady improvement in the standard of living, measured by real GDP per capita. Since 2007, Québec s standard of living has improved at a similar rate to that of its main trading partners. The 2008-2009 recession was not as severe in Québec as in Canada and the United States. Consequently, Quebecers saw only a slight decline in their standard of living in 2009 ( 0.9%), compared to significant declines in Canada ( 4.1%), Ontario ( 4.9%) and the United States ( 4.8%). Québec, Ontario, Canada and the United States have all been gaining ground since 2010. In Québec, economic growth rapidly raised the standard of living to above its 2007 level and it has continued to rise. From 2007 to 2016, real GDP per capita rose by 3.4% in Québec, compared to 2.9% in Canada, 3.7% in Ontario and 4.2% in the United States. CHART C.2 Standard of living (real GDP per capita, index 2007 = 100) 106 104 102 Québec Ontario Canada United States U.S.: 104.2 ON: 103.7 QC: 103.4 CA: 102.9 100 98 96 94 99.1 95.9 ON: 95.1 U.S.: 95.2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (1) (1) For 2016, Conference Board of Canada real GDP forecasts for Ontario and Ministère des Finances du Québec forecasts for Québec, Canada and the United States. Sources: Institut de la statistique du Québec, Statistics Canada, Ontario Ministry of Finance, Conference Board of Canada, IHS Global Insight and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.5
Productivity and employment gains will be the primary drivers of growth The October 2016 Update of the Québec Economic Plan forecasts Québec real GDP growth of 1.4% in 2016 and 1.5% in 2017. The key factors of economic growth, as measured by the increase in real GDP, are as follows: demographic growth, indicated by changes in the population aged 15-64, who constitute the main pool of potential workers; employment growth, reflected in an increased rate of employment, that is, the ratio of workers to the population aged 15-64; improved productivity, i.e. increased production per worker. Prior to 2014, the increase in GDP was based more or less equally on the three factors listed above. However, demographics recently stopped contributing to growth. An increase in the employment rate and growth in productivity will be the main drivers of economic growth going forward. TABLE C.2 Contribution of economic growth factors in Québec (average annual percentage change and contribution in percentage points) Historical Forecast 1982-2007- 2008-2013- 2014 2015 2016 2017 2018-2020- Real GDP (percentage change) 2.1 1.2-1.5 1.1 1.4 1.5 1.5- Growth factors (contribution): Potential labour pool (1) 0.6 0.6-0.1 0.1 0.1 0.1 0.2- Employment rate (2) 0.6 0.4-0.0 1.1 0.8 0.7 0.7- Productivity (3) 0.8 0.3-1.6 0.2 0.7 0.9 1.0- Note: Totals may not add due to rounding. (1) Population 15-64 years of age. (2) Total number of workers out of the population 15-64 years of age. (3) Real GDP per worker. Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.6 October 2016 Update
SECTION For personal use only Confidence in the Québec economy is strengthening C Several indicators show that consumer and investor confidence is getting stronger. Job creation continued in 2016, with job gains mainly in full-time employment and the private sector. Compared to the same period in 2015, 44 200 full-time jobs and 30 500 jobs in the private sector were created in the first nine months of 2016. The robust job creation has fuelled consumer spending. In the first two quarters of 2016, household consumption expenditure rose by 1.8% in real terms, outstripping GDP growth. The strong labour market was reflected in consumer confidence. The Index of Consumer Confidence, measured by the Conference Board of Canada, stood at 129.0 points in Québec in September, a record high since 2007. Furthermore, responsible management of public finances and the Québec government s sound financial position boosted business confidence. In September 2016, Québec businesses were the most optimistic among the provinces for the first time in 16 years, according to the Canadian Federation of Independent Business Business Barometer Index. Moreover, the optimism of small businesses spurred an upturn in business investment. Non-residential business investment in real terms was 0.5% higher in the second quarter of 2016 than in the previous quarter. TABLE C.3 Change in selected economic indicators in Québec (percentage change in real terms, unless otherwise indicated) 2016 Q1 Q2 Q3 (1) 2015 2016 (1) Real GDP 0.7 0.2 n/a- 1.1 1.3-- Creation of full-time jobs (thousands) 14.6 19.2 0.7-45.0 44.2-- Household consumption 0.8 0.2 n/a- 1.3 1.8-- Consumer confidence (points, 2014 = 100) 94.3 115.6 127.8-102.8 112.6-- Business confidence (points) 64.2 61.4 65.4-57.9 63.6-- (1) Cumulative for available periods. Sources: Institut de la statistique du Québec, Statistics Canada, Conference Board of Canada, Canadian Federation of Independent Business. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.7
1.2 Growth driven by consumption and a recovery in investment The forecast real GDP growth of 1.4% in 2016 and 1.5% in 2017 will be driven primarily by higher household consumption and a recovery in non-residential business investment. Household consumption will remain robust thanks to continued job creation, high consumer confidence and low energy prices. Non-residential business investment renewed with growth in the second quarter of 2016, after remaining weak since 2013. A stable and predictable business climate contributed to the upturn, which is expected to strengthen in the coming quarters. In addition, spending and investment by all governments will help sustain growth. Furthermore, after several years of strong growth, the volume of exports is expected to remain at peak levels. Exports got off to a slow start in 2016 due, in particular, to a slowdown among Québec s main trading partners. In the coming quarters, Québec exports will benefit from the weak Canadian dollar and strengthening of economic activity in the United States. TABLE C.4 Real GDP and its major components (percentage change and contribution in percentage points) 2015 2016 2017 Contribution of domestic demand 0.5 1.2 1.4 Household consumption 1.3 1.9 1.8 Residential investment 0.6 0.8 1.2 Non-residential business investment 4.8 1.9 3.2 Government spending and investment 0.4 0.4 0.6 Contribution of the external sector 0.6 0.6 0.0 Total exports 2.3 0.2 2.2 Total imports 0.8 0.9 2.1 Contribution of inventories 0.1 0.3 0.2 REAL GDP 1.1 1.4 1.5 Note: Totals may not add due to rounding. Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.8 October 2016 Update
1.3 For personal use only Continued job creation SECTION C The labour market performed well in 2015, with the creation of 37 300 jobs, including 28 400 payroll jobs in the private sector and 45 000 full-time jobs. The high number of full-time jobs created bears witness to businesses optimism over Québec s economic outlook. Employment growth will continue with the acceleration in economic activity. In 2016, 29 000 new jobs should be added, a 0.7% increase over the previous year. In 2017, another 26 100 jobs should be created, for an increase of 0.6%. In addition, the unemployment rate is expected to continue falling, reflecting the robust labour market. After standing at 7.6% in 2015, the unemployment rate is projected to fall to 7.2% in 2016 and 6.9% in 2017. CHART C.3 Job creation in Québec (thousands) CHART C.4 Unemployment rate in Québec (per cent) 8.6 +29.0 +26.1 4 126.0 4 152.1 8.0 7.9 7.7 7.6 7.7 7.6 +37.3 4 059.7 4 097.0 7.3 7.2 7.2 6.9 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. 2007 2009 2011 2013 2015 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.9
0.4 0.5 0.6 1.0 Overview of job creation in the first nine months of 2016: high number of full-time time jobs concentrated in the private sector Québec gained 21 500 jobs in the first nine months of 2016 compared to the same period in 2015. All of the jobs created were full-time and concentrated in the private sector, which bears witness to businesses optimism over Québec s economic outlook. Since the beginning of the year: full-time employment grew by 44 200; private-sector payroll jobs rose by 30 500. Québec, British Columbia and Ontario are the only three provinces in Canada on track to see overall employment growth in 2016. Furthermore, in the first nine months of 2016, Québec created the second-highest number of full-time jobs of all the provinces. Québec s unemployment rate returned to the levels seen before the 2008-2009 recession Québec s unemployment rate gradually fell from 8.6% in 2009 to 7.6% in 2015. The average unemployment rate for the first nine months of 2016 was 7.3%. The unemployment rate dropped to 6.9% in September, its lowest level since the last recession (6.8% in September 2007). The continued decline in the unemployment rate is a reflection of greater use of the available labour pool. Creation of full-time jobs in Canada in 2016 (1) (per cent) Unemployment rate in Québec (per cent, monthly data) 2.2 9 8.9 8.8 1.3 1.2 8 7.9 8.1 1.7 2.7 7 6.8 6.9 3.6 BC QC ON NS NB MB SK PE NL AB 6 2007 2009 2011 2013 2015 (1) Cumulative for the nine months available in 2016, compared to the same period in 2015. Source: Statistics Canada. Source: Statistics Canada. The Québec Economic Plan C.10 October 2016 Update
SECTION For personal use only Sustained growth in employment since May 2014 C The Québec labour market has been robust since May 2014. According to the results of Statistic Canada s Labour Force Survey, 127 800 jobs have been created in Québec since May 2014, including: 125 200 full-time jobs, i.e. 98% of total job creation; 97 600 private sector jobs, i.e. 76% of total job creation. Québec stands out, accounting for nearly 50% of private sector job creation in Canada since May 2014. Québec ranks first among the provinces, ahead of Ontario and British Columbia, with respect to job creation in the private sector. Private sector job creation in Canada since May 2014 (private sector jobs created, thousands) 97.6 70.8 63.0 6.8 3.6 0.8 0.6 1.6 6.1 QC ON BC NB MB SK PE NL NS AB 36.6 Source: Statistics Canada. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.11
1.4 Household consumption expenditure, the main driver of economic growth Household consumption expenditure will be the main driver of economic growth in Québec. After increasing by 1.3% in real terms in 2015, this expenditure is expected to accelerate to 1.9% growth in 2016 and 1.8% growth in 2017. Consumer confidence reached record levels in Québec in 2016, reflecting household optimism about the economic outlook. Moreover, households continue to benefit from low energy prices, which increase their purchasing power. Nominal growth in household disposable income, expected to be 4.0% in 2016 and 3.2% in 2017, will support consumer spending. Sustained job creation, particularly full-time jobs, will lead to faster wage growth. The reduction in the tax burden through elimination of the health contribution and payment of the new Canada Child Benefit will spur growth in household disposable income. CHART C.5 Household consumption expenditure in Québec (percentage change, in real terms) CHART C.6 Household disposable income in Québec (percentage change, in nominal terms) 4.0 1.8 1.9 1.8 2.9 2.8 3.2 1.5 2.2 1.3 2013 2014 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. 2013 2014 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.12 October 2016 Update
SECTION For personal use only Québec consumers are confident about the economic outlook C The Conference Board of Canada s Index of Consumer Confidence has risen significantly in Québec since the start of 2016. The index for Québec rose to 129.0 points in September 2016. Such a high level of confidence has not been seen since November 2007. In the first nine months of 2016, the Index of Consumer Confidence for Québec averaged 112.6 points. By comparison, the index averaged 101.9 points in 2013. A similar improvement was not seen in Canada. The consumer confidence index for Canada averaged 95.7 points in 2016, below the levels in 2015 (98.2 points) and 2014 (100.0 points). The strong improvement in Québec consumer confidence reflects Quebecers optimism about the economic growth outlook. It points to continued growth in Québec household consumption over the coming quarters. Change in the Index of Consumer Confidence (points, 2014 = 100) 140 130 Québec Canada 129.0 120 110 100 103.0 90 80 70 2012 2013 2014 2015 2016 Source: Conference Board of Canada. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.13
1.5 Recovery in investment is underway Non-residential business investment picking up The period of weak non-residential business investment that began in 2013 recently turned around. After contracting for several quarters, non-residential business investment rose by 0.5% in real terms in the second quarter of 2016. The observed improvement in consumer and business confidence fostered the upturn. The recovery was supported by investments in machinery and equipment, which have been increasing since the beginning of the year. In real terms, business investment in machinery and equipment rose by 0.2% in the first quarter and 1.7% in the second quarter of 2016. CHART C.7 Business investment in machinery and equipment in Québec (quarterly percentage change, in real terms) CHART C.8 Non-residential business investment in Québec (quarterly percentage change, in real terms) 1.7 0.5 0.2 0.1 3.3 1.8 5.1 Q3 Q4 Q1 Q2 2015 2016 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. 2.6 Q3 Q4 Q1 Q2 2015 2016 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.14 October 2016 Update
Recovery in business investment preceded by renewed investment in machinery and equipment For personal use only SECTION C Following three consecutive years of contraction, the quarterly growth rate indicates that business investment is rebounding. In real terms, non-residential business investment as a whole is expected to continue picking up gradually in the second half of 2016 and increase by 3.2% in 2017. The revival in non-residential business investment was preceded by an increase in machinery and equipment investment since the beginning of 2016. Machinery and equipment investment serves primarily to help businesses boost productivity. Businesses generally make greater use of their existing capital endowment before increasing their production capacity substantially. This intensive use of machinery is reflected in the industrial capacity utilization rate in Canada s manufacturing sector, which averaged 82.8% in 2016, the highest level since 2007. CHART C.9 Total non-residential business investment in Québec (percentage change, in real terms) CHART C.10 Industrial capacity utilization rate in Canada s manufacturing sector (per cent) 9.3 9.1 3.2 82.6 82.8 76.1 77.3 82.4 82.8 79.7 80.7 81.4 79.7 4.8 1.9 72.0 7.9 11.0 2011 2012 2013 2014 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. 2006 2008 2010 2012 2014 2016 (1) (1) Cumulative for available quarters. Source: Statistics Canada. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.15
Recovery in investment supported by a favourable economic and budgetary situation A number of factors supported the recovery in investment over the last few quarters. Sound public finances bolstered investor confidence in Québec s economic outlook. In September, the Canadian Federation of Independent Business (CFIB) Business Barometer Index, which measures small and medium-sized business (SMB) confidence, reached 67.1 points in Québec, making it the highest ranking in the country for the first time in 16 years. According to CFIB, one normally sees an index level of between 65 and 70 when the economy is growing at its potential. Furthermore, several indicators suggest that production capacity is being used more intensively. Québec household consumption continued to rise, in particular due to robust job creation. Strong consumption in the United States and a low Canadian dollar boosted Québec exports. CHART C.11 Canadian Federation of Independent Business Business Barometer Index (points) 70 65.4 Québec Canada 67.1 65 63.0 60 59.0 55 50 2013 2014 2015 2016 Source: Canadian Federation of Independent Business. The Québec Economic Plan C.16 October 2016 Update
Residential investment trending in pace with Quebecers needs SECTION C In 2016 and 2017, residential investment in real terms is expected to remain at similar levels to those registered in the last few years, that is, nearly $22 billion. These levels match Quebecers needs. In fact, housing starts are currently trending in pace with household formation in Québec. Roughly 36 300 new units should be built in 2016, followed by 34 400 units in 2017, levels that are in line with the increase in the number of households. Investment in renovation is expected to increase in real terms by 0.8% in 2016 and 2.0% in 2017. This type of investment is helped by the RénoVert tax credit introduced by the Québec government in March 2016. Furthermore, still-low interest rates will continue to boost residential investment and facilitate access to home ownership. CHART C.12 Residential investment in Québec (billions of 2007 dollars) CHART C.13 Housing starts and household formation in Québec (thousands) 25 20 15 11.6 10 21.0 21.6 Housing starts 47.4 Household formation 43.7 40.0 39.5 39.5 38.8 37.8 37.9 38.2 36.3 36.0 34.4 5 0 2000 2004 2008 2012 2016 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. 2012 2013 2014 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada, Canada Mortgage and Housing Corporation and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.17
Government investments remain at high levels Québec s public administration sector, including the federal and provincial governments and municipalities, will maintain a high level of infrastructure investment. Investment in infrastructure is an important economic engine in Québec, giving Quebecers and businesses alike access to quality infrastructure. Between 2007 and 2015, the total value of infrastructure investment by all levels of government rose by more than 40%. A total of $17.5 billion was invested in infrastructure in 2015. The value of investments by all levels of government is expected to be $17.1 billion in 2016 and $17.6 billion in 2017. More specifically, the Québec government will maintain a high level of investment under the Québec Infrastructure Plan (QIP), at nearly $90 billion over ten years. In addition, the major investments under the QIP will be bolstered by the funding provided under the federal government s infrastructure plan. CHART C.14 Government investments in Québec (billions of dollars, in nominal terms) 15.1 17.0 16.9 17.3 17.0 16.7 17.3 17.5 17.1 17.6 9.0 9.2 10.3 11.5 11.5 12.4 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.18 October 2016 Update
1.6 For personal use only Québec exports remain at record highs SECTION C Québec exports rose 4.5% in 2014 and 2.3% in 2015 in real terms. They will remain at record levels in 2016. In early 2016, exports temporarily showed signs of slowing down due to: the difficulties experienced in Canada in the second quarter of 2016, in particular owing to the wildfires in Alberta; slower economic growth in the United States in the first half of the year, accompanied by a decline in private investment. Historically, Québec s goods exports to the United States are tied to U.S. investment trends. These negative factors will dissipate over the coming quarters, with the Canadian and U.S. economies expected to gain traction in the second half of 2016. Furthermore, the low Canadian dollar will continue to make Québec exports more competitive in international markets. Consequently, Québec exports are forecast to grow in real terms by 0.2% in 2016 and 2.2% in 2017. CHART C.15 Québec s total exports (billions of 2007 dollars) CHART C.16 Québec international goods exports and private investment in the United States (annual percentage change, in real terms) +2.2 % 161.1 30 Private investment in the U.S. Québec exports +2.3 % 157.4 157.7 20 +4.5 % 153.9 10 146.1 147.3 0-10 -20 2012 2013 2014 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. -30 2000 2003 2006 2009 2012 2015 Sources: Institut de la statistique du Québec, Statistics Canada, IHS Global Insight and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.19
Québec exports to the United States at high levels After contracting during the 2008-2009 recession, Québec s international exports of goods to the United States, Québec s main international trading partner, picked up sharply. The value of goods exports to the United States rose by 13.0% in 2014 and 12.3% in 2015. The increase in 2015 represented the fifth consecutive year of export growth. In 2015, the value of exports surpassed the levels seen prior to the 2008-2009 recession. Québec exports to the U.S. market are expected to remain at high levels in the coming quarters. The anticipated upturn in U.S. economic growth in the second half of the year, along with a weak Canadian dollar, should support export growth in 2016 and 2017. Québec s international exports of goods to the United States (billions of dollars, in nominal terms) 70 60 63.5 52.1 59.5 53.0 55.8 50 40 40.2 30 20 17.0 10 0 1988 1992 1996 2000 2004 2008 2012 2016 (1) (1) Cumulative for the months available. Source: Institut de la statistique du Québec. The Québec Economic Plan C.20 October 2016 Update
Weak Canadian dollar curbs imports For personal use only SECTION C Total imports are expected to fall by 0.9% in real terms in 2016 and then return to growth in 2017, increasing by 2.1%. In 2016, a weak Canadian dollar will continue to curb imports by making foreign goods more expensive. In 2017, imports will get a bigger boost from growth in non-residential business investment in Québec. Contribution of the external sector to economic growth Net exports, which account for changes in exports and imports, are projected to contribute 0.6 percentage point to real GDP growth in 2016. The positive contribution of net exports will result from an increase in exports and a decrease in imports. In 2017, stronger growth in imports, tied to renewed investment and replenished inventories, is expected to mitigate the external sector s contribution to Québec s economic growth. CHART C.17 Québec imports (percentage change, in real terms) CHART C.18 Québec exports and imports (percentage change, in real terms) 2.1 2.3 Exports 2.2 2.1 Imports 0.8 0.8 0.2 0.9 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. 0.9 2015 2016 2017 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.21
Low oil prices affect consumer prices Like several other economies, Québec is currently in a period of low inflation. Falling energy prices have put a drag on consumer price growth in several countries since 2015. In Québec, the consumer price index (CPI) is expected to rise by 0.7% in 2016, after increasing by 1.1% in 2015. The low price of oil should translate to a 5.7% decrease in the CPI s energy component in 2016. The consumer price index excluding energy should increase by 1.4% in 2016. In 2017, the CPI is projected to rise by 1.7%. The anticipated gradual rebound in oil prices will drive a 2.3% increase in the energy component. In addition, the weak Canadian dollar, which raises the price of imported products, will help support price growth. The CPI will thus remain below 2.0% for the fifth year in a row. CHART C.19 Change in the consumer price index in Québec (percentage change) 2.1 3.4 0.7 1.4 0.6 0.9 1.1 0.7 1.7 2.3 Total Energy 5.7 10.2 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.22 October 2016 Update
The cost of living rose less in Québec than elsewhere in Canada For personal use only SECTION C Lower inflation in Québec Since the beginning of 2016, inflation has been lower in Québec than in Canada and Ontario. A comparison of the first eight months of 2016 against the same period in 2015 shows that the consumer price index (CPI) rose by 0.8% in Québec versus 1.5% in Canada and 1.7% in Ontario. In Québec, the currently low rate of inflation is not synonymous with economic hardship. Household consumption, one of the determinants of inflation, has been strong since the beginning of the year. After two quarters in 2016, Québec household consumption is up 1.8% in real terms, compared to the same period in 2015. Lower increase in the cost of living in Québec In any given region, inflation depends on a range of factors, including application of the various tariffs and regulations introduced by governments. Moreover, four factors specific to Québec, Canada and Ontario could largely explain the inflation gaps between these jurisdictions: electricity; home ownership; automobile insurance; tuition fees. Change in total CPI and selected components in 2016 (1) (percentage change) 16.0 Québec Canada Ontario 6.3 0.8 1.5 1.7 1.2 0.9 1.9 2.6 1.1 2.8 4.0 0.4 2.1 6.1 Total CPI Electricity Home ownership Automobile insurance premiums Tuition fees (1) Average for the first eight months of 2016, compared to the same period in 2015. Source: Statistics Canada. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.23
The cost of living rose less in Québec than elsewhere in Canada (cont) Price of electricity In April 2016, Hydro-Québec increased its electricity rates by just 0.7%. This was the lowest rate hike in four years. The increase in electricity rates was much higher In Canada and Ontario. A comparison of the first eight months of 2016 against the same period in 2015 shows that the electricity component of the CPI rose by 1.2% in Québec versus 6.3% in Canada and 16.0% in Ontario. Home ownership One of the components of the CPI relates to the cost of owning a home. Variations in the home ownership component depend mainly on housing prices and interest rates. In recent years, housing prices have surged in some markets, such as Vancouver and Toronto, whereas they have remained relatively flat in Québec. This trend has a significant influence on the CPI. A comparison of the first eight months of 2016 against the same period in 2015 shows that the home ownership component of the CPI rose by 0.9% in Québec versus 1.9% in Canada and 2.6% in Ontario. Automobile insurance premiums Given the improvement in Québec s road safety record in recent years, the Société de l assurance automobile du Québec (SAAQ) reduced the insurance contributions included in driver s licences and vehicle registrations by a significant amount. The amount of the contribution was reduced from $64 to $55 for a driver s licence and from $120 to $64 for a vehicle registration. This is a 35% decrease. The substantial reduction impacted total automobile insurance costs in Québec. A comparison of the first eight months of 2016 against the same period in 2015 shows that the automobile insurance component of the CPI decreased by 6.1% in Québec versus 0.4% in Canada and 2.1% in Ontario. Tuition fees Québec also set itself apart from Canada and Ontario in the tuition component of the CPI. A comparison of the first eight months of 2016 against the same period in 2015 shows that tuition fees rose by 1.1% in Québec versus 2.8% in Canada and 4.0% in Ontario. The Québec Economic Plan C.24 October 2016 Update
SECTION For personal use only 1.7 Change in nominal GDP C Following 2.0% growth in 2015, nominal GDP is expected to increase by 2.6% in 2016 and 3.3% in 2017. Nominal GDP growth will result from: faster growth in real GDP, which will increase by 1.4% in 2016 and 1.5% in 2017; increases in the GDP deflator of 1.2% in 2016 and 1.8% in 2017. Note that the GDP deflator, the index that measures changes in GDP prices, is determined by two key factors: domestic demand prices, an important indicator of which is the CPI; the ratio between export prices and import prices, that is, the terms of trade. The modest increase in the GDP deflator in 2016 is primarily attributable to low energy costs. A gradual increase in the price of energy products in 2017 will enable more sustained growth in GDP prices. TABLE C.5 Economic growth in Québec (percentage change) 2015 2016 2017 Real GDP 1.1 1.4 1.5 Price GDP deflator 1.0 1.2 1.8 Nominal GDP 2.0 2.6 3.3 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.25
1.8 Comparison with private sector forecasts The Ministère des Finances du Québec s economic growth forecast for 2016 and 2017 is cautious. It is similar to the average private sector forecast. For 2016, the projected 1.4% growth in real GDP is the same as the average private sector forecast. For 2017, the projected 1.5% increase in real GDP is below the average private sector forecast of 1.6% growth. CHART C.20 Economic growth in Québec in 2016 (real GDP, percentage change) CHART C.21 Economic growth in Québec in 2017 (real GDP, percentage change) 1.9 1.4 1.2 1.4 1.6 1.5 1.4 1.6 Ministère Low Average High des Finances Private sector du Québec Source: Ministère des Finances du Québec summary as of October 7, 2016, which includes the forecasts of 11 private sector institutions. Ministère des Finances du Québec Source: Low Average High Private sector Ministère des Finances du Québec summary as of October 7, 2016, which includes the forecasts of 11 private sector institutions. The Québec Economic Plan C.26 October 2016 Update
SECTION For personal use only TABLE C.6 Economic outlook for Québec Comparison with the Québec Economic Plan of March 2016 (percentage change, unless otherwise indicated) C 2015 2016 2017 Output Real gross domestic product 1.1 1.4 1.5 March 2016 1.1 1.5 1.6 Nominal gross domestic product 2.0 2.6 3.3 March 2016 2.0 3.2 3.3 Components of GDP (in real terms) Household consumption 1.3 1.9 1.8 March 2016 1.4 1.9 1.7 Government spending and investment 0.4 0.4 0.6 March 2016 0.3 0.2 0.3 Residential investment 0.6 0.8 1.2 March 2016 0.9 0.1 0.7 Non-residential business investment 4.8 1.9 3.2 March 2016 4.7 0.0 2.8 Exports 2.3 0.2 2.2 March 2016 1.8 2.8 2.6 Imports 0.8 0.9 2.1 March 2016 0.7 1.5 1.9 Labour market Job creation (thousands) 37.3 29.0 26.1 March 2016 37.3 29.8 29.2 Unemployment rate (%) 7.6 7.2 6.9 March 2016 7.6 7.5 7.2 Other economic indicators (in nominal terms) Household consumption (excluding food and rent) 1.8 2.8 3.2 March 2016 2.2 3.4 3.7 Wages and salaries 2.1 2.9 3.0 March 2016 2.1 3.1 3.1 Household income 3.0 3.0 3.3 March 2016 3.2 3.1 3.2 Net operating surplus of corporations 3.0 0.3 5.4 March 2016 5.0 5.9 6.0 Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.27
1.9 Five-year economic outlook for 2016-2020 The Ministère des Finances du Québec s five-year forecast is cautious. It is in line with the average private sector forecast for real GDP growth, price increases and nominal GDP growth. For real GDP, the Ministère des Finances du Québec forecasts average growth of 1.5% from 2016 to 2020, a similar growth rate to the average private sector forecast. For nominal GDP, the Ministère des Finances du Québec forecasts average growth of 3.1% from 2016 to 2020, compared to the average 3.2% growth rate forecast by the private sector. TABLE C.7 Québec economic outlook Comparison with the private sector (percentage change) 2015 2016 2017 2018 2019 2020 Average 2016-2020 Real GDP Ministère des Finances du Québec 1.1 1.4 1.5 1.6 1.5 1.4 1.5 Private sector average 1.4 1.6 1.6 1.5 1.4 1.5 Price change (1) Ministère des Finances du Québec 1.0 1.2 1.8 1.7 1.7 1.7 1.6 Private sector average 1.2 1.8 1.8 1.8 1.8 1.7 Nominal GDP Ministère des Finances du Québec 2.0 2.6 3.3 3.3 3.3 3.1 3.1 Private sector average 2.6 3.4 3.4 3.4 3.3 3.2 Note: Totals may not add due to rounding. (1) GDP deflator. Source: Ministère des Finances du Québec summary as of October 7, 2016, which includes the forecasts of 11 private sector institutions. The Québec Economic Plan C.28 October 2016 Update
2. THE SITUATION OF QUÉBEC S MAIN ECONOMIC PARTNERS SECTION C The Québec economy is open to the world. In 2015, total exports accounted for over 46% of Québec s nominal GDP. While Québec has diversified trade in recent years, Canada and the United States remain its main trading partners. Québec s economic activity is influenced by the situation of its main trading partners Economic activity in Québec is influenced by the situation of its main trading partners, in particular through exports. Québec exports to the United States slowed in early 2016 due to a slowdown in U.S. economic activity. They are expected to pick up in the second half of the year with firmer growth in the United States and a weak Canadian dollar; exports to the rest of Canada are gradually gaining momentum, whereas the Western provinces are still adjusting to the low energy prices; exports to the rest of the world are growing at a moderate pace, tied to growth in the global economy. CHART C.22 Share of exports in Québec s GDP, by destination (percentage of nominal GDP, 2015) 18.1 38.8 20.7 3.4 4.4 Canada United Europe Others States Note: Figures have been rounded off. Sources: Institut de la statistique du Québec, Statistics Canada and Ministère des Finances du Québec. CHART C.23 Change in real GDP (annual percentage change) 5 4 3 2 1 0-1 Québec -2-3 Canada -4 United States -5 2002 2005 2008 2011 2014 2017 Sources: Institut de la statistique du Québec, Statistics Canada, IHS Global Insight and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.29
2.1 The economic situation in Canada Canada s real GDP growth is expected to remain at 1.1% in 2016, the same pace of growth as in 2015. Whereas the economic situation in the oil-producing provinces was already difficult, Canada s economy stumbled temporarily in the second quarter of 2016 as a result of the wildfires in Alberta, which seriously hampered oil production. In the second quarter of 2016, Canada s real GDP contracted by 0.4%. However, the weak oil prices and Canadian dollar are supporting economic activity in the other provinces. In 2017, Canada s real GDP growth is expected to accelerate to 1.9%. Provinces that do not produce oil will continue to see healthy real GDP growth thanks to low energy costs, a weak Canadian dollar and stronger growth in the United States. Furthermore, a slight uptick in oil prices should drive a gradual recovery in economic activity in oil-producing provinces. In addition, stimulus measures introduced by the federal government should provide a further boost to economic growth in 2017. CHART C.24 Economic growth in Canada (real GDP, percentage change) Québec Economic Plan of March 2016 October 2016 Update 1.7 2.2 2.5 2.1 1.9 1.3 1.1 1.1 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.30 October 2016 Update
Canada s two-tiered economy For personal use only SECTION C In 2016, low oil prices and a weak Canadian dollar benefited provinces that do not produce oil, especially Québec, Ontario and British Columbia. In contrast, the protracted weakness in oil prices since the second half of 2014 triggered a significant deterioration in the economic situation in the oil-producing provinces, that is, Alberta, Saskatchewan and Newfoundland and Labrador. This divergence is reflected in a number of economic indicators. More specifically: job losses have been mounting in the oil-producing provinces since mid-2015, whereas the other provinces have experienced continued employment growth; retail sales have been sliding since January 2015 in the oil-producing provinces, but increasing in the other provinces; consumer confidence has waned significantly in the Prairie Provinces. According to the Conference Board of Canada, the confidence index in these provinces fell from 104.0 points in January 2014 to 63.7 points in September 2016; housing starts dropped by 33.1% in the oil-producing provinces during the first nine months of 2016, after already falling by 13.4% in 2015 over the previous year. Change in retail sales Change in employment (annual percentage change, in nominal terms) (index, January 2014 = 100) 12 8.9 Producing provinces Other provinces Canada 103 102.4 8 102 4 0 3.7 2.3 3.6 2.3 101 102.1 100.6-4 -8 Jan. 14 Jan. 15 Jan. 16 3.0 100 Producing provinces Other provinces 99 Canada Jan-14 Jan. 14 Jan-15 Jan. 15 Jan-16 Jan. 16 Note: The oil-producing provinces are Alberta, Saskatchewan and Newfoundland and Labrador. Sources: Statistics Canada and Ministère des Finances du Québec. Note: The oil-producing provinces are Alberta, Saskatchewan and Newfoundland and Labrador. Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.31
Labour market buoyed by job creation in provinces that do not produce oil In 2016, Canada is expected to create 108 000 jobs, a 0.6% increase over the previous year. Overall, Canada s unemployment rate is projected to edge up from 6.9% in 2015 to 7.0% in 2016. Strengthening of economic activity in provinces that do not produce oil translates to robust employment growth in these regions. Québec, Ontario and British Columbia are the only provinces on track for employment growth in 2016. Labour market conditions remain difficult in the oil-producing provinces. In 2017, a general upturn in Canada s economy should further support job creation. Employment is forecast to expand by 0.8%, adding nearly 153 000 new jobs and pushing the unemployment rate down to 6.9%. The outlook for job creation takes into account demographic factors, in particular slowing growth of the labour pool (population aged 15-64) across Canada. Over the last ten years, the population aged 15-64 grew by an average of nearly 185 000 people per year. Over the next five years, this age group is expected to expand by an average of around 55 000 people per year. CHART C.25 Job creation in Canada (percentage change) CHART C.26 Unemployment rate in Canada (per cent) 1.3 1.5 7.3 7.1 0.8 0.8 7.0 0.6 0.6 6.9 6.9 6.9 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.32 October 2016 Update
Household consumption remains sustained For personal use only SECTION C Household consumption expenditure will be the main driver of Canada s economic growth. It is projected to rise in real terms by 2.2% in 2016 and 2.0% in 2017, after increasing by 1.9% in 2015. Still, these increases are lower than in previous years and reflect the economic difficulties faced by the oil-producing provinces. Low energy prices as well as the new Canada Child Benefit will bolster the purchasing power and consumption of every Canadian household. However, job losses in the oil sector will limit growth in wages and salaries and have a dampening effect on consumer spending in the coming years. Moreover, consumer spending across Canada will be supported by employment growth in provinces that do not produce oil. CHART C.27 Household consumption expenditure in Canada (percentage change, in real terms) CHART C.28 Wages and salaries in Canada (percentage change, in nominal terms) 1.9 2.4 2.6 1.9 2.2 2.0 4.3 3.6 3.7 3.0 2.6 1.8 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.33
Slowdown in the residential sector Residential investment in Canada is expected to rise by 2.3% in 2016 and contract by 5.0% in 2017. Canada s housing market has been surprisingly strong since the beginning of 2016, fuelled by robust activity in the Vancouver and Toronto markets. In the first nine months of 2016, average housing starts were up 40.4% in British Columbia and 11.4% in Ontario over the same period in 2015. The increases were offset by a 38.0% decrease in housing starts in Alberta and a 2.8% decline in Saskatchewan since the beginning of the year. Canada s residential sector will likely decelerate in 2017. The demand for new housing has been largely filled already in the major urban centers of Toronto and Vancouver. British Columbia recently introduced an additional property transfer tax for foreign nationals and foreign corporations that buy real estate within the Greater Vancouver Regional District. Furthermore, on October 3, 2016, the Department of Finance Canada announced a series of new measures to stabilize the Canadian residential sector. CHART C.29 Housing starts in Canada (thousands) 214.8 CHART C.30 Residential investment in Canada (percentage change, in real terms) 5.6 187.9 189.3 195.5 192.6 2.5 3.8 2.3 173.9 0.4 2012 2013 2014 2015 2016 2017 Sources: Canada Mortgage and Housing Corporation and Ministère des Finances du Québec. 5.0 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.34 October 2016 Update
The energy sector will continue dampening business investment in Canada For personal use only SECTION C In 2015, non-residential business investment contracted 10.3% in real terms. The sharp drop in oil prices drove a 22.0% downturn in investment in the energy sector. A further 6.6% decline in non-residential business investment is anticipated in 2016, followed by an increase of 3.1% in 2017. Investment in the energy sector is expected to drop by 14.3% in 2016. The protracted weakness in oil prices, overcapacity in the mining, oil and gas sector, as well as lower profits for mining and oil and gas companies, will likely delay investment in the energy sector. In turn, lower energy costs, a depressed Canadian dollar and stronger foreign demand put greater pressure on manufacturing production capacity. However, the positive impact on manufacturing investment is gradually being seen. A gradual rebound in oil prices in 2017 should allow for an upturn in energy investment. The combined effect of the rebound in oil prices and recovery in investment in Canada s manufacturing sector is expected to put total nonresidential investment on the growth path again. CHART C.31 Non-residential business investment in Canada (percentage change, in real terms) CHART C.32 Non-residential business investment in the energy sector in Canada (percentage change, in real terms) 6.8 0.7 3.1 9.3 12.4 4.7 4.0 0.5 6.6 14.3 10.3 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. 22.0 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.35
Slowdown in export growth Growth in Canadian exports in real terms is expected to slow to 0.5% in 2016 and accelerate to 2.6% in 2017. Weak U.S. economic activity in the first half of 2016, in particular the downturn in private investment, slowed Canadian export growth at the beginning of the year. The expected revival of economic growth in the United States as well as the low Canadian dollar should provide Canada s exports with an added boost in the second half of 2016. Canada s imports are expected to fall by 1.3% in 2016 in real terms. The import decline is primarily attributable to the downturn in energy investment and the depressed dollar, which makes imported products costlier. In 2017, an acceleration in Canada s economic activity, especially the recovery in non-residential business investment, should provide greater support for import growth. CHART C.33 Canadian exports (percentage change, in real terms) 5.3 CHART C.34 Canadian imports (percentage change, in real terms) 3.6 2.5 3.4 1.5 1.8 2.6 2.8 2.6 0.3 0.5 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. 1.3 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.36 October 2016 Update
SECTION For personal use only Low energy prices continue to affect nominal GDP growth in 2016 C After increasing by just 0.5% in 2015, Canada s nominal GDP is expected to expand by 1.5% in 2016 and then accelerate to 3.9% growth in 2017. The sharp drop in oil prices as well as the Canadian dollar s depreciation had a significant influence on Canada s GDP deflator in 2015. The effects have lasted into 2016. On the one hand, low oil prices pushed down the value of Canadian exports, Canada being a net exporter of petroleum products. On the other, the low Canadian dollar drove up import prices. In addition, the drop in energy prices continued to put downward pressure on domestic demand prices. In 2017, the anticipated gradual recovery in oil prices will have a positive effect on the GDP deflator through both domestic demand prices and export prices. Furthermore, an acceleration in the real economy will provide additional support to nominal GDP growth. CHART C.35 Nominal GDP in Canada (percentage change) 3.8 4.3 3.9 3.0 1.5 0.5 2012 2013 2014 2015 2016 2017 Sources: Statistics Canada and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.37
2.2 The economic situation in the United States Following a 2.6% increase in 2015, the U.S. real GDP growth rate is projected to slow to 1.5% in 2016 and then accelerate to 2.1% in 2017. These are downward adjustments of 0.8 pp in 2016 and 0.2 pp in 2017 relative to the forecasts contained in the Québec Economic Plan of March 2016. The adjustments are primarily attributable to disappointing growth in the first half of 2016 due to a decline in business investment and a significant correction to the pace of inventory accumulation. However, the U.S. economy is expected to rebound in the second half of the year. Growth buoyed by domestic demand In 2016 and 2017, U.S. economic growth will be buoyed by an increase in domestic demand under the influence of: robust growth in consumer spending, fuelled by continued job creation and faster wage growth; a gradual rebound in business investment, as the negative effects of low oil prices on the energy sector are expected to dissipate; continued expansion of residential investment, spurred by more robust household formation and the low inventory of homes for sale. However, a strong U.S. dollar and more moderate global economic growth will continue to limit the contribution of net exports to U.S. real GDP growth. CHART C.36 Economic growth in the United States (real GDP, percentage change) Québec Economic Plan of March 2016 October 2016 Update 2.4 2.6 2.3 2.3 2.1 1.7 1.5 2013 2014 2015 2016 2017 Sources: IHS Global Insight and Ministère des Finances du Québec. The Québec Economic Plan C.38 October 2016 Update
Disappointing start to 2016 in the United States SECTION C The U.S. economy grew at a much slower pace in the first half of 2016. Real GDP increased at an annualized rate of 0.8% and 1.4% in the first and second quarters, respectively, after growing by 2.6% in 2015. The slowdown occurred despite robust growth in consumption and is primarily attributable to a contraction in investment and a slower pace of inventory accumulation. Weak business investment Business investment was down 3.4% in the first quarter and edged up just 1.0% in the second quarter of 2016, primarily as a result of: increased concerns among businesses, leading them to put off some of their investment projects; continually low oil prices, which still weighed on energy investment. Slower pace of inventory accumulation U.S. business inventory shrank in the second quarter, the fifth consecutive decline in its contribution to growth. The decline was a major factor in the weakness of economic activity in the second quarter, shaving 1.2 percentage points from GDP growth on an annualized basis. The slower pace of inventory accumulation is a temporary factor. The U.S. economy is expected to see stronger growth in the second half of the year, propelled by an upturn in business investment and a positive contribution by inventory to growth. Economic growth in the United States (per cent, at an annualized rate) Business investment in the United States (per cent, at an annualized rate) 2.0 2.6 2.0 0.9 0.8 1.4 Total investment Excluding the energy sector 7.9 7.7 4.4 3.9 3.9 1.3 1.6 1.0 0.6 2.1 3.3 3.4 Q1 Q2 Q3 Q4 Q1 Q2 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 2015 2016 Source: IHS Global Insight. Sources: IHS Global Insight and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.39
A new growth path for the U.S. economy Between 1990 and 2007, U.S. economic growth averaged 3.0% per year. Growth was supported by a significant increase in the working-age population as well as an improvement in labour productivity through the adoption of information technologies in the workplace. Structural factors have hampered growth since the 2008-2009 recession Since the end of the 2008-2009 recession, the U.S. economy has grown at an average rate of 2.2%, a slower pace than prior to the recession. Growth in the working-age population is decelerating. The contribution of the potential labour pool to real GDP growth fell from an average of 1.2 percentage point (pp) from 1990-2007 to 0.5 pp from 2010-2015. At the same time, the contribution of labour productivity to real GDP growth shrank from 1.6 pp to 0.9 pp between those same periods. Furthermore, a large part of the post-recession economic growth was attributable to the ground made up by the labour market, with nearly 8 million U.S. jobs having been lost during the recession. Demographic factors will continue to curtail U.S. real GDP growth in future. In addition, as the under-utilized labour pool shrinks, employment gains will become harder to make. Lastly, without major new technology breakthroughs, productivity growth will remain slightly below the levels seen in the 1990s. Based on these trends and according to several forecasters, U.S. economic growth is projected to be around 2.0% per year over the long term. Breakdown of average annual U.S. real GDP growth, by growth factors (average annual percentage change and contribution in percentage points) 3.0 1.6 1.2 0.2 Productivity Employement rate Potential workforce 2.2 2.1 2.0 1.5 0.9 1.0 1.3 1.3 0.8 0.7 0.5 0.5 0.5 0.4 0.3 0.2 Average 1990-2007 Average 2010-2015 2016 2017 Average 2018-2025 Note: Totals may not add due to rounding. Sources: IHS Global Insight and Ministère des Finances du Québec. The Québec Economic Plan C.40 October 2016 Update
Consumer spending spurred by favourable conditions SECTION For personal use only C Household consumption expenditure rose by 3.2% in 2015 and is expected to increase by 2.7% in 2016 and 2.5% in 2017. The expenditure growth will be driven by an increase in real personal disposable income of approximately 2.7% per year over the same period, outstripping the average increase of 2.0% since the recession ended. More jobs will be created over the next two years and there will be more sustained increases in hourly wages. In addition, U.S. household consumption is continuing to reap the benefits of several positive factors. American consumers are less in debt, with the ratio of household financial obligations to disposable personal income falling to 15.4% in the second quarter of 2016, below the average ratio of 16.5% registered since the beginning of the 1980s. Household net worth stood at 6.4 times personal disposable income in the second quarter of 2016, which is near the pre-recession peak. Consumer confidence remained high, with the index averaging above 100 points in the third quarter of 2016. CHART C.37 Consumption and personal disposable income in the United States (percentage change, in real terms) CHART C.38 Consumer confidence in the United States (index, 1985 = 100, quarterly data) 5 4 3 2 1.9 Consumption Personal disposable income 2.5 2.7 1.5 120 100 80 110 81 101 101 1 0 60-1 -2-3 1.6 2009 2011 2013 2015 2017 Sources: IHS Global Insight and Ministère des Finances du Québec. 40 30 20 2006 2009 2012 2015 Sources: IHS Global Insight and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.41
Labour market sees more moderate gains After peaking at 2.9 million new jobs in 2015, job creation is expected to slow to 2.5 million in 2016 and 1.6 million in 2017, an annual increase of 1.7% and 1.1%, respectively. Nonetheless, since the start of 2016 job creation has remained robust, with an average of 178 000 jobs being added each month. The pace of hiring is expected to continue slowing, however, with the significant decline in the under-utilized labour pool. Job creation will continue in 2016 and 2017, averaging more than 100 000 new jobs each month. This is the level of job creation needed for the unemployment rate to remain flat. American workers will benefit from the tighter job market, with employers offering higher wages as an incentive. After increasing by 2.1% in 2015, hourly wages in the private sector are projected to rise by 2.2% in 2016 and 2.6% en 2017. CHART C.39 Job creation in the United States (annual change, in millions) 2.2 2.2 2.6 2.9 2.5 1.5 1.6 1.6 0.8 1.0 CHART C.40 Unemployment rate and hourly wage in the United States (per cent, annual data) 13.5 11.5 9.5 7.5 Unemployement rate (l.s.) Hourly wage private sector (r.s.) 9.6 7.4 2.6 4.0 3.5 3.0 2.5 5.5 4.6 4.8 2.0 3.5 1.5 5.9 2007 2009 2011 2013 2015 2017 Sources: IHS Global Insight and Ministère des Finances du Québec. 1.5 1.0 2007 2009 2011 2013 2015 2017 Sources: IHS Global Insight and Ministère des Finances du Québec. The Québec Economic Plan C.42 October 2016 Update
Business investment expected to rebound in 2017 SECTION C Following 2.1% growth in 2015, U.S. real business investment is forecast to decline 0.3% in 2016. The downturn will be temporary, however. Business investment should renew with growth in 2017 and rise by 3.9%. On the other hand, investment in the non-energy sector is projected to grow by 1.5% in 2016 and 2.6% in 2017. Since the beginning of the year, business investment has been negatively affected by the impact of low oil prices on energy investment and the heightened uncertainty among businesses, leading them to put off some of their investment projects. Business investment is expected to return to growth in the second half of 2016 and continue in 2017, driven by: still-robust household consumption expenditure, which will encourage businesses to invest in order to meet demand; overall improvement in business confidence; the gradual increase in oil prices, which should stop the decline in energy investment. Furthermore, the number of new oil wells operating in the United States has been increasing since June 2016. CHART C.41 Business investment in the United States (percentage change, in real terms) CHART C.42 Investment in the non-energy sector (1) in the United States (percentage change, in real terms) 5.9 7.7 9.0 6.0 3.5 2.5 2.1 3.9 6.3 8.8 6.6 6.1 3.6 4.3 1.8 1.5 2.6 0.7 0.3 1.1 15.6 14.8 2007 2009 2011 2013 2015 2017 Sources: IHS Global Insight and Ministère des Finances du Québec. 2007 2009 2011 2013 2015 2017 (1) Business investment excluding energy installations. Sources: IHS Global Insight and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.43
Residential sector still making a significant contribution After increasing by 11.7% in 2015, U.S. residential investment is expected to continue rising at a sustained pace, that is, 5.5% in 2016 and 5.7% in 2017. More specifically, housing starts should continue climbing, to stand at 1.2 million units in 2016 and 1.4 million units in 2017. The growth will be supported primarily by: household formation, which is projected to reach nearly 1.2 million in 2016 and 1.3 million in 2017; mortgage rates, which will remain low despite the anticipated continuation of monetary tightening in the United States; the low inventory of homes for sale, which at the beginning of the year was at its lowest point since 2005. This situation should encourage construction companies to pick up the pace of new-home building. CHART C.43 Residential investment in the United States (percentage change, in real terms) CHART C.44 Housing starts and household formation in the United States (millions) 13.5 11.9 11.7 5.5 5.7 3.5 0.5 2.0 1.5 1.4 Housing starts Household formation 1.2 1.4 18.8 21.2 24.0 2.5 2007 2009 2011 2013 2015 2017 Sources: IHS Global Insight and Ministère des Finances du Québec. 1.0 0.5 0.9 0.8 0.6 0.6 1.0 0.0 2007 2009 2011 2013 2015 2017 Sources: IHS Global Insight and Ministère des Finances du Québec. The Québec Economic Plan C.44 October 2016 Update
Moderate growth in government spending SECTION C After increasing by 1.8% in 2015, spending in real terms by all levels of government in the United States is projected to grow by 1.1% in 2016 and 0.9% in 2017. Most of the public spending growth will result from: a 0.8% increase in federal government spending in real terms in 2016 and 2017 under the terms of budget agreements that temporarily raise discretionary spending, especially for transportation, education and defence; higher spending by state and local governments, with increases of 1.2% in 2016 and 0.9% in 2017. This spending will be supported by increased revenues generated by an improvement in the labour market and higher real estate prices. An increase in public investment is also anticipated in the coming years. Note that the share of public investment in U.S. GDP fell to 3.4% in 2015, the lowest level in over 60 years. The Congressional Budget Office, a federal agency that provides non-partisan analysis to Congress, estimates that the federal budget deficit will rise from 2.5% of GDP in 2015 to 3.2% of GDP in 2016 and 3.1% of GDP in 2017. CHART C.45 Government spending in the United States (1) (percentage change, in real terms) CHART C.46 Government investments in the United States (percentage of GDP, in nominal terms) 1.6 3.2 2.8 1.8 1.1 0.9 8 7 6 7.1 5.2 0.1 5 4.5 3,0 1,9 2,9 0,9 2007 2009 2011 2013 2015 2017 (1) Total spending on goods and services by all levels of government. Sources: IHS Global Insight and Ministère des Finances du Québec. 4 3 2 Sources: U.S. Census Bureau and Ministère des Finances du Québec. 3.4 1 1955 1965 1975 1985 1995 2005 2015 The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.45
Export growth slowed by global economic conditions and the strong U.S. dollar Following a 0.1% increase in 2015, exports are forecast to fall by 0.1% in 2016 and then rise by 2.0% in 2017. Since 2015, growth in U.S. exports has been limited by: the strength of the U.S. dollar, which nearly reached a 13-year high at the start of 2016 and makes U.S. exporting firms less competitive in the international market; weak growth among several of the United States trading partners, in particular Latin America and European Union member states. Imports, on the other hand, are projected to increase by 1.3% in 2016 and 4.9% in 2017, following 4.6% growth in 2015. Imports will benefit from: robust U.S. consumption, which drives higher demand for imported goods; the strong U.S. dollar, which reduces the price of imported goods and services. Net exports are expected to make a negative contribution to economic growth in 2016 and 2017 with import growth outstripping export growth. CHART C.47 Change in U.S. exports and imports (percentage change, in real terms) CHART C.48 Price of imports (1) and U.S. dollar exchange rate (2) (indexes) Exports Imports 3.4 3.5 4.3 4.4 4.6 4.9 125 120 115 Import prices (left scale) U.S. dollar (right scale, inverted) 60 65 70 2.2 1.1 0.1 1.3 0.1 Sources: IHS Global Insight and Ministère des Finances du Québec. 2.0 2012 2013 2014 2015 2016 2017 110 105 100 95 90 2011 2012 2013 2014 2015 75 80 85 90 95 (1) 2009 = 100 (2) U.S. dollar exchange rate against the major currencies, weighted by trade. March 1973 = 100 Sources: Bloomberg, IHS Global Insight and Ministère des Finances du Québec. The Québec Economic Plan C.46 October 2016 Update
Nearly three-quarters of Québec s international exports of goods are shipped to the United States SECTION For personal use only C The vast majority (72.5% in 2015) of Québec s international exports of goods are shipped to the United States. The share of exports to the United States far outstrips that of exports to China (3.3%), France (1.9%), the United Kingdom (1.8%) and Mexico (1.6%). Québec exports are destined mainly for the Northeast, Midwest and some southern states Most of Québec s merchandise exports to the United States are shipped to the northeastern states (38.1% of all exports to the U.S.). Their geographical proximity favours trade with these states. The midwestern states of Ohio, Illinois and Michigan are also important markets for Québec goods, as are some of the southern states, including Texas, Tennessee and Georgia. The southern states account for nearly 30% of Québec s exports to the United States, while the Midwest accounts for 23.9%. Exports to these states are boosted by the large population in these regions. Over half of exports to the United States are from four industries Over 50% of Québec s exports to the United States come from four industries: primary metal manufacturing (18.6%), paper and wood product manufacturing (13.0%), aerospace products and parts (11.7%) and petrochemicals (7.6%). Regional breakdown of goods exported to the United States 2015 (percentage of total exports to the United States) Main types of goods exported to the United States 2015 (percentage of total exports to the United States) Northeast 38.1 % Midwest 23.9 % Primary metal manufacturing 18.6 % Wood product and paper manufacturing 13.0 % West 7.8 % Aerospace product and parts 11.7 % South Petrochemical 30.2 % 7.6 % Others 49.1 % Sources: Institut de la statistique du Québec and Ministère des Finances du Québec. Sources: Institut de la statistique du Québec and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.47
Nearly three-quarters of Québec s international exports of goods are shipped to the United States (cont) The type of goods Québec exports to the United States can vary widely with the geographical destination. Wide variation in exports according to the region Primary products, such as metals, paper and wood product, as well as food, are mainly shipped to the northeastern and midwestern states. The Northeastern United States also receives a large share of the oil refined in Québec. The southern states receive mostly manufactured goods, in particular aerospace products, machinery and chemical products. Québec exports influenced by linkages between industries Québec s goods exports to different parts of the United States are determined by geographical proximity as well as by the presence of related sectors or even headquarters in certain states. For example: electricity exports are concentrated in Vermont, New York and Maine, primarily due to Québec s geographical proximity to these states and the physical constraints of transporting electricity over long distances; the high demand for aluminum in Tennessee is tied to its automotive industry; exports of aerospace products to Connecticut, Texas and Ohio get a boost from the presence of the headquarters of companies operating in this sector, such as Pratt & Whitney, Bell Helicopter Textron and NetJets. Exports to the United States by region and type of goods 2015 (percentage of total exports to the United States) Petrochemical sector Others Primary metal manufacturing Aerospace Product and Parts Manufacturing Wood product and paper manufacturing 38.1 30.2 23.9 7.8 Northeast South Midwest West Sources: Institut de la statistique du Québec and Ministère des Finances du Québec. The Québec Economic Plan C.48 October 2016 Update
3. EVOLUTION OF FINANCIAL MARKETS SECTION C Easing of financial volatility The turmoil experienced in global financial markets at the beginning of 2016 eased over the course of the year. While the climate of uncertainty persists, global economic activity has shown signs of resilience in recent months. Growth was robust in China and India, with a year-over-year change in the second quarter of 6.7% and 7.1%, respectively. After reaching a low in February 2016, the global Purchasing Managers Index has shown a positive trend and risen gradually in recent months. Financial markets reacted favourably to these statistics. Global stock markets rebounded during the summer and the volatility at the beginning of the year eased. June saw a temporary increase in instability, reflecting the uncertainty caused by Brexit. The price of Brent oil exceeded US$50 per barrel in early October, after dropping to US$28 in January. In addition, the Canadian dollar rose to around 76 U.S. cents after falling to 69 cents in January. Canadian and U.S. bond rates remained low, in a global context of weak interest rates, and even negative interest rates in the case of Europe and Japan. CHART C.49 Evolution in the global Purchasing Managers Index (diffusion index, monthly data) CHART C.50 Yields on 10-year government bonds 2016 (per cent) 56 55 54 53 55.5 2.4 2.2 2.0 1.8 1.6 United States (left scale) 0.6 Canada (left scale) 0.5 Germany (right scale) 0.4 1.7 0.3 0.2 52 51.7 1.4 0.1 51 Februrary 2016 50.8 50 Oct-13 Sep-14 Aug-15 Jul-16 Oct. 13 Sep. 14 Aug. 15 Jul. 16 1.2 1.0 1.0 0.8 Jan. Mar. May. Jul. Sep. 0.0-0.1-0.2 Source: Bloomberg. Source: Bloomberg. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.49
Federal Reserve expected to raise its key interest rate by year-end The U.S. Federal Reserve (the Fed) has not changed its monetary policy since the beginning of 2016. The federal funds target rate has been within the 0.25%-0.50% range since December 2015. In June, the Fed refrained from raising its key interest rate, owing primarily to the economic and financial uncertainty caused by the United Kingdom European Union membership (Brexit) referendum. At its meeting in September, the Fed again maintained the status quo, but said that there were more cogent arguments for increasing the key interest rate. The continued strong performance of the U.S. labour market, coupled with the improvement in the U.S. economy anticipated in the second half of the year, is expected to enable the Fed to raise its key interest rate in December 2016. The Fed will then likely continue to gradually tighten its monetary policy. Two rate increases are therefore anticipated in 2017. Moreover, repeated decreases in neutral interest rate estimates will result in a weaker long-term key interest rate than in the past. CHART C.51 U.S. Federal Reserve key interest rate projections (1) (per cent at year-end) December 2015 September 2016 1.38 0.63 2.38 1.13 3.25 1.88 3.50 (1) Median projection of the 17 participants in the Federal Open Market Committee. Source: U.S. Federal Reserve. 2.88 2016 2017 2018 Long term CHART C.52 U.S. key interest rate (federal funds target rate, per cent) 6 5 4 3 2 5.25 2.00 1 0.38 0.13 0 2006 2008 2010 2012 2014 2016 Sources: IHS Global Insight and Ministère des Finances du Québec. 1.13 The Québec Economic Plan C.50 October 2016 Update
Decline in the neutral rate since the recession For personal use only SECTION C The neutral rate refers to the real interest rate, which is neither stimulative nor contractionary when the economy is operating at its potential. The neutral rate balances savings and investment levels in a full employment situation. The neutral rate has declined since the recession The neutral rate has declined significantly in a number of economies since the 2008-2009 recession, due primarily to the decrease in potential GDP growth, but also due to a higher savings rate and lower investment spending globally. According to the Bank of Canada, the nominal neutral rate is currently between 2.75% and 3.75% in Canada, whereas it stood between 4.50% and 5.50% prior to the 2008-2009 recession. That is a drop of nearly two percentage points. In the United States, the Federal Reserve s September 2016 median projection puts the appropriate long-term key interest rate, which has also experienced a substantial decrease in recent years, at approximately 2.9%. The lower neutral rate has major effects on the real economy The lower neutral rate means that central banks must hold their key interest rates longer at below pre-recession levels. This leads to historically weak long-term interest rates. Low interest rates are good for borrowers, including households and governments. Lower financing costs should encourage consumption and investment. However, low rates negatively impact bank profitability. They pose a challenge for long-term investors such as pension plans and insurance companies, which must deal with necessarily smaller returns on bond holdings. Rates of Canadian and U.S. 10-year bonds (per cent, monthly data) 5.2 4.6 4.0 5.1 Canada United States 3.4 2.8 2.9 2.2 2.4 1.6 1.7 1.0 1.5 1.3 1.2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sources: Statistics Canada and IHS Global Insight. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.51
The Bank of Canada continues to wait In its September 7 announcement, the Bank of Canada (BoC) held its key interest rate at 0.50%, its level since July 2015. The bank was cautiously optimistic about the economic outlook for the country, but said that the risks surrounding developments in inflation had recently declined. Following the contraction of Canada s GDP in the second quarter, the BoC anticipates renewed growth in the third quarter. According to the bank, economic activity is expected to be buoyed by the resumption of oil production and the rebuilding in Alberta, following the wildfires in May 2016, and by the payment of the new Canada Child Benefit, which should support household consumption. Moderate global inflation and modest economic growth in Canada are expected to prompt the BoC to wait until the first quarter of 2018 to start raising its key interest rate. Bond rates remain low Bond rates in advanced economies have remained low in recent months, in a global context of weak interest rates. Canada s bond rates are expected to rise only gradually in the coming quarters. Low or negative returns in Europe and Japan continue to limit the increase in Canadian and U.S. bond rates. In addition, Canada s financial markets expect there will be an accommodative monetary policy for an extended period, despite the gradual increase in interest rates projected in the United States. TABLE C.8 Canadian financial markets (average annual rate in per cent, unless otherwise indicated) 2015 2016 2017 Target for the overnight rate 0.6 0.5 0.5 March 2016 0.5 0.6 3-month Treasury bills 0.5 0.5 0.6 March 2016 0.5 0.7 10-year bonds 1.5 1.2 1.6 March 2016 1.5 2.3 Canadian dollar (in U.S. cents) 77.5 75.8 76,7 Mars 2016 70.6 71.9 Sources: Statistics Canada, Bloomberg and Ministère des Finances du Québec. The Québec Economic Plan C.52 October 2016 Update
The Canadian dollar will stay close to current levels SECTION For personal use only C After averaging 90.2 U.S. cents in 2014 and 77.5 U.S. cents in 2015, the Canadian dollar is expected to average 75.8 U.S. cents in 2016 and rise slightly in 2017, averaging 76.7 U.S. cents. Since the start of the year, the loonie has gained ground, after falling to a low of less than 70 U.S. cents in January. The dollar rose 16% between mid-january and early May, before stabilizing at around 76.5 U.S. cents in recent months. This rise is due in part to the depreciation of the U.S. dollar, while financial markets have significantly lowered their expectations regarding future increases in the key interest rate in the United States. In addition, the Canadian dollar was buoyed by the increase in oil prices during the first half of 2016. The loonie could take a slight downturn by the end of the year, following the projected December 2016 rise in interest rates in the United States. It is expected to gradually appreciate as of 2017, owing particularly to an anticipated increase in oil prices. CHART C.53 CHART C.54 Canadian dollar exchange rate Canadian and U.S. dollar exchange rate (1) 2016 (U.S. cents, annual average) (U.S. cents and index, March 1973 = 100) 63.7 72.0 77.2 82.7 88.5 101.3 96.5 96.6 93.3 90.2 87.9 77.5 76.7 75.8 2002 2005 2008 2011 2014 2017 Sources: Bloomberg and Ministère des Finances du Québec. 80 78 76 74 79.8 72 94 Canadian dollar (left scale) 70 U.S. dollar (right scale, 96 68.6 inverted) 68 98 Jan. Mar. May Jul. Sep. (1) Trade-weighted U.S. dollar exchange rate against major currencies. Source: Bloomberg. 86 88 90 92 The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.53
A slow, gradual rebalancing of the oil market After falling to a low of less than US$30 per barrel in early 2016, Brent and West Texas Intermediate (WTI) oil prices averaged US$47 and US$45, respectively, in September. This rebound was fuelled by a decline in U.S. production, strengthening refinery demand, and supply disruptions in certain oil-producing countries. The higher refinery demand is due mainly to an increase in global refining capacity of 1.2 million barrels per day (mb/d) in 2015 and 1.5 mb/d in 2016, primarily in China and the United States. However, a weak economic outlook and a persistent oversupply due to record levels of crude oil inventories will slow the rebalancing of oil supply and demand. This return to equilibrium is expected to occur gradually, which will cause a moderate rise in oil prices. The price of Brent oil is expected to average US$44 per barrel in 2016 and US$51 in 2017, while it is anticipated that the price of WTI oil will average US$42 per barrel in 2016 and US$49 in 2017. CHART C.55 Change in Brent, WTI and WCS oil prices (U.S. dollars per barrel) CHART C.56 Oil production in the United States (millions of barrels per day, monthly data) 100 93 74 Brent West Texas Intermediate (WTI) Western Canada Select (WCS) 10 9 9.6 54 49 36 44 42 28 51 49 33 8 7 8.4 2014 2015 2016 2017 Sources: Bloomberg and Ministère des Finances du Québec. 6 2013 2014 2015 2016 Source: U.S. Energy Information Administration. The Québec Economic Plan C.54 October 2016 Update
4. THE INTERNATIONAL ECONOMIC CONTEXT For personal use only SECTION C Global economic growth was 3.2% in 2015. Growth rates of 3.0% in 2016 and 3.2% in 2017 are expected. The forecasts for 2016 and 2017 have been revised downward by 0.1 pp relative to the Québec Economic Plan of March 2016. The main reasons for the downward revisions are weaker-than-expected growth in the United States at the beginning of the year as well as the uncertainties arising from the United Kingdom s withdrawal from the European Union (Brexit). The global economy should therefore continue to expand and strengthen modestly in the second half of 2016 and in 2017. Advanced economies are likely to see continued growth as a result of low oil prices and the expansionary fiscal policies in certain countries. Expansion of emerging economies will be driven by the high growth still being seen in China and India. In addition, given the anticipated increase in oil prices, the economic difficulties experienced by some oil-producing countries are expected to alleviate. Despite these favourable conditions, global economic growth remains subdued, primarily due to the effects of population aging. CHART C.57 Global economic growth (real GDP in purchasing power parity, percentage change) Québec Economic Plan of March 2016 October 2016 Update 5.4 4.8 5.5 5.7 5.4 4.2 3.0 3.5 3.3 3.4 3.2 3.1 3.0 3.3 3.2 0.1 20042005 20052006 20062007 2007 2008 2009 2010 2011 2012 20132014 20142015 2015 2016 2017 Sources: International Monetary Fund, IHS Global Insight, Eurostat and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.55
Weak global trade growth since the recession Growth in the volume of world trade has been sluggish since the 2008-2009 recession. According to the International Monetary Fund (IMF), the annual growth rate averaged just 2.9% between 2008 and 2015, compared to 7.3% from 2000 to 2007. The slowdown results from: weak global economic growth; the new phase of globalization, characterized in particular by a slowdown in offshoring of production to emerging economies with lower labour costs and by higher trade barriers. Trade is adjusting to a new level of global economic growth According to a recent IMF study, the more sluggish economic growth, especially in investment, resulted in slower growth in world trade. Growth in world real GDP fell from an average rate of 4.5% between 2000 and 2007 to 3.2% between 2008 and 2015. Investment growth also decreased, dropping from 4.9% to 3.0% for the same periods. World trade in goods and services (1) Global business investment (1) (percentage change, in real terms) (percentage change, in real terms) 20 15 10 5 0-5 Average 2000-2007: 7.3 0.3 Average 2008-2015: 2.9 2.6 15 10 5 0 Average 2000-2007: 4.9 11.4 5.9 2.6-10 -15 10.5-5 -20 2000 2003 2006 2009 2012 2015 (1) Average growth rate of exports and imports. Sources: International Monetary Fund and Ministère des Finances du Québec. -10 2000 2003 2006 2009 2012 2015 (1) World Economic Outlook, April 2016, International Monetary Fund. Sources: International Monetary Fund and Ministère des Finances du Québec. The Québec Economic Plan C.56 October 2016 Update
Continued growth in advanced economies SECTION C Advanced economies continue to expand despite a slowdown in 2016. The growth rate is expected to decrease from 2.1% in 2015 to 1.5% in 2016 and then rise to 1.7% in 2017. Growth in this group of countries will be driven mainly by low oil prices and the maintenance of accommodating financial conditions. In the United States, economic growth is expected to rebound in the second half of 2016, after getting off to a disappointing start. In Japan, growth will get a boost from the decision to defer the scheduled increase in the consumption tax, which will likely increase from 8% to 10% in 2019. In the euro area, growth will benefit, in particular, from the easing of credit conditions, with support from accommodative monetary policy, and budget measures implemented by a number of governments. The United Kingdom will feel the negative effects of its withdrawal from the European Union, which could intensify business concerns. Against this backdrop, the rate of growth in UK real GDP is expected to slow to 1.9% in 2016 and 0.5% in 2017 (+2.2% in 2015). However, these effects should have a limited impact on the global economy, as the United Kingdom accounts for only 2.4% of global GDP. CHART C.58 Growth of advanced economies (growth in per cent and contribution in percentage points) 1.1 United States Other advanced economies 2.1 1.9 1.7 1.7 1.0 1.5 0.6 0.9 1.2 1.2 0.6 0.8 0.8 0.4 0.6 0.6 1.0 1.1 0.9 0.9 2011 2012 2013 2014 2015 2016 2017 Note: Figures at the top indicate real GDP growth in purchasing power parity. Sources: IHS Global Insight, International Monetary Fund and Ministère des Finances du Québec. CHART C.59 Credit conditions in the euro area (share of banks that plan to tighten or ease credit conditions) 100 80 60 40 20 0 Easing -20 2006 2008 2010 2012 2014 2016 Source: Bloomberg. Business loans Real estate loans Consumer loans Tightening The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.57
Alleviation of difficulties in commodity-exporting emerging economies After standing at 4.0% in 2015, growth in emerging economies is projected to accelerate modestly to 4.1% in 2016 and 4.3% in 2017. Growth will be driven primarily by: improvement of the economic situation in commodity-producing countries, such as Brazil, Russia and some African countries, which will benefit from the modest rise in oil prices; continued high growth in China and India, where government action will spur growth in domestic demand. Even with modest strengthening, emerging economies will grow at a slower pace than the average annual growth of 5.7% seen from 2010 to 2014. China s transition to an economic growth model driven by consumption and services is ongoing. At the same time, the rate of growth in China is slowly decelerating, edging down from 7.3% in 2014 to 6.9% in 2015 and 6.7% in the first half of 2016. CHART C.60 Growth in emerging economies (growth in per cent and contribution in percentage points) 6.3 2.5 0.7 3.1 5.3 2.2 0.6 2.5 China India Other emerging economies 5.0 2.2 0.8 2.0 4.6 2.1 0.9 1.6 4.0 4.1 2.1 2.0 0.9 1.0 4.3 1.9 1.0 1.0 1.1 1.4 2011 2012 2013 2014 2015 2016 2017 Note: Figures at the top indicate real GDP growth in purchasing power parity. Sources: IHS Global Insight, International Monetary Fund and Ministère des Finances du Québec. CHART C.61 China real GDP and shares of the industrial and service sectors (percentage of GDP, unless otherwise indicated) Industry (right scale) 16 Services (right scale) 55 GDP growth (left scale) (1) 14 50 12 10 8 6 4 2 2007 2009 2011 2013 2015 45 40 35 30 25 20 Note: The total does not add up to 100% because the primary sector is not included. (1) Annual percentage change. Sources: Bloomberg and International Monetary Fund. The Québec Economic Plan C.58 October 2016 Update
SECTION For personal use only Growth outlook for the major economies C In Canada, real GDP growth is expected to remain at 1.1% in 2016, a similar pace to that in 2015. Oil-producing provinces are still experiencing economic difficulties, while manufacturing provinces are benefiting from the low Canadian dollar and oil prices. In 2017, economic growth is projected to increase to 1.9%. Gradually rising oil prices should drive a revival of energy investment. In the United States, growth is expected to slow from 2.6% in 2015 to 1.5% in 2016 and then accelerate to 2.1% in 2017. After a disappointing start to the year, the U.S. economy should gain traction in the second half of 2016, supported mainly by domestic demand. On the other hand, the strong U.S. dollar as well as more moderate growth of several of the United States main trading partners will continue to limit the contribution of net exports to real GDP growth. In the euro area, growth is expected to decelerate from 2.0% in 2015 to 1.5% in 2016 and 1.2% in 2017, primarily due to the slowdown in the United Kingdom, its main trading partner. However, domestic demand will continue to benefit from low oil prices. In the United Kingdom, growth is projected to be 1.9% in 2016 and 0.5% in 2017, compared to 2.2% in 2015. The negative repercussions of the uncertainties arising from the United Kingdom s withdrawal from the European Union are likely to put a drag on growth in the coming years, despite the recent easing of monetary policy. In Japan, economic growth is projected to remain at 0.5% in 2016 and be 0.8% in 2017. It should be supported by the new US$270 billion economic stimulus plan announced by the Japanese government. In addition, the consumption tax increase, initially scheduled for April 2017, has been delayed to 2019. Japan s economic expansion will nonetheless be strained by the negative impact of the strong yen. In China, economic growth is likely to continue slowing and stand at 6.5% in 2016 and 6.2% in 2017 as the country transitions to a consumption- and service-driven growth model. However, the economy will get a boost from the government s major investment plan and robust consumption. In India, the economy is still seeing robust growth. Real GDP is forecast to rise by 7.6% in 2016 and 7.4% in 2017. Domestic demand will be helped by progress in the structural reforms, in particular government measures to relax foreign direct investment rules, and by monetary easing. In addition, exports could benefit from continued growth in the United States, a major market for India. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.59
TABLE C.9 Global economic growth outlook (real GDP, annual percentage change) Weight (1) 2015 2016 2017 World (2) 100.0 3.2 3.0 3.2 March 2016 3.0 3.1 3.3 Advanced economies (2) 42.9 2.1 1.5 1.7 March 2016 1.9 1.9 2.0 Canada 1.5 1.1 1.1 1.9 March 2016 1.2 1.3 2.1 United States 15.9 2.6 1.5 2.1 March 2016 2.4 2.3 2.3 Euro area 12.1 2.0 1.5 1.2 March 2016 1.5 1.6 1.6 United Kingdom 2.4 2.2 1.9 0.5 March 2016 2.2 2.2 2.1 Japan 4.3 0.5 0.5 0.8 March 2016 0.4 0.9 0.7 Emerging and developing economies (2) 57.1 4.0 4.1 4.3 March 2016 3.9 4.0 4.3 China 16.6 6.9 6.5 6.2 March 2016 6.9 6.3 6.2 India (3) 6.7 7.6 7.6 7.4 March 2016 7.5 7.5 7.2 (1) Weight in global GDP in 2014. (2) Data based on purchasing power parity. (3) For the fiscal year (April 1 to March 31). Sources: IHS Global Insight, International Monetary Fund, Datastream, Eurostat, Statistics Canada and Ministère des Finances du Québec. The Québec Economic Plan C.60 October 2016 Update
5. CHANGES IN THE PRICES OF THE MAIN METALS IN QUÉBEC For personal use only SECTION C After standing at its lowest level in late 2015, the world price index for metals from Québec (WPIMQ) rose appreciably during the first half of 2016. The index, which tracks prices for the principal metals mined in Québec along with aluminum, jumped 14.9% between December 2015 and September 2016 following an increase in each of its three components. The aluminum sub-index and the industrial metals sub-index rose by 6.6% and 29.4%, respectively, mainly as a result of the positive impact on demand of the economic support measures introduced by the Chinese government. The precious metals sub-index jumped 24.1% with low interest rates and the uncertain economic and political climate driving heightened demand for these metals as safe-haven investments. Furthermore, the 5.4% depreciation in the U.S. dollar since peaking in January also drove up metal prices, metals generally being traded in U.S. dollars. Following several years of decline, the WPIMQ appears to be gaining traction with the downward adjustment in global production of metals and more sustained demand for certain metals. CHART C.62 World price index for metals from Québec (1) (index, 2010 = 100, monthly data) 200 150 Total Aluminum (Al) Industrial metals (IM) Precious metals (PM) 100 50 PM: 100.1 Al: 87.4 Total: 75.6 IM: 52.0 Forecasts 0 2005 2010 2015 2020 (1) The index includes the prices for the principal metals mined in Quebec (iron, nickel, zinc, copper, gold and silver) as well as aluminum. Prices used to calculate the index are expressed in U.S. dollars. Sources: Institut de la statistique du Québec, Statistics Canada, Bloomberg, World Bank and Ministère des Finances du Québec. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.61
Price of aluminum benefits from an adjustment in global production Global aluminum production was down 0.7% year-over-year in the first half of 2016. Chinese production fell by 1.8% during the same period, leading to a 9.2% decline in China s aluminum exports. The adjustment boosted the price of aluminum, which has risen 8.1% since November and averaged US$1 594 per tonne in September. The price of aluminum also benefited from the positive impact on demand of China s economic support measures as well as depreciation of the U.S. dollar. Demand for aluminum will continue to grow in the coming years, driven primarily by the increasing use of this metal in the automotive sector and the fabrication of power cables. The price of aluminum is therefore expected to average US$1 600 per tonne in 2017, up from almost US$1 580 in 2016. After that, the price should continue to see slight rises. The ongoing construction of new aluminum smelters, particularly in China, will strain price growth for aluminum. CHART C.63 Price of aluminum (U.S. dollars per tonne, monthly data) CHART C.64 Aluminum production (percentage change) 3 500 3 078 3 000 2 500 2 000 2 672 2 054 World 21.1 China 17.6 12.2 11.2 8.8 9.4 9.5 7.5 3.3 3.6 1 500 1 594 1 474 1 344 1 000 2008 2010 2012 2014 2016 Sources: Bloomberg and Ministère des Finances du Québec. 0.7 1.8 2011 2012 2013 2014 2015 2016 (1) Production in the first half of 2016 relative to the same period in 2015. Sources: Bloomberg and Ministère des Finances du Québec. (1) The Québec Economic Plan C.62 October 2016 Update
Sharp rise in industrial metal prices in 2016 SECTION C Industrial metal prices were in a trough at the beginning of the year as a result of market concerns over economic growth in China, the sharp drop in oil prices and the rise in the U.S. dollar. Since then, however, there has been a strong price appreciation. The price of iron ore jumped 19.2% in March, after the Chinese government announced a new five-year plan to boost economic growth by at least 6.5% per year between now and 2020. The price also benefited from a slight upturn in building construction in China. The price of nickel increased 14.9% in July, when the Philippine government announced that operation of a number of nickel mines was being suspended for environmental reasons. The price of zinc is up nearly 50% since January, benefiting from a 12.0% decrease in mine production after the first seven months of 2016, compared to the same period in 2015. The price of copper has also increased since the start of the year, but not as much as the price of most other metals because of the high volume of copper produced. Industrial metal prices are expected to continue rising in the coming years, but gradually, given the moderate outlook for global economic growth. CHART C.65 Recent price trend for certain industrial metals 2016 (index, January 2016 = 100, monthly data) CHART C.66 Building construction in China (surface area, percentage change) 160 140 150.6 136.2 13.2 16.1 120 119.8 9.2 105.7 100 Iron ore Nickel Zinc Copper 80 Jan Mar May Jul Sep Sources: Bloomberg and Ministère des Finances du Québec. 1.3 4.6 2012 2013 2014 2015 2016 (1) Cumulative for the first eight months of 2016 over the same period in 2015. Source: National Bureau of Statistics of China. (1) The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.63
Low interest rates underpinned gold prices Central banks highly accommodative monetary policies amid an uncertain economic and political climate spurred demand for gold as a safe haven and drove a sharp increase in its price since the start of 2016. The price of gold rose from US$1 070 an ounce in December 2015 to US$1 326 an ounce in September 2016, an increase of 23.9%. Low interest rates, and even the negative interest rates imposed by a number of central banks in Europe and Japan, depressed the yield on government bonds. This situation makes gold more attractive as a safe-haven investment. As a result, demand for gold used for that purpose more than doubled between the second half of 2015 and the first six months of 2016, increasing from 452 to 1 064 tonnes during that period. Whereas world production of gold remains relatively stable and global uncertainty is expected to continue to be contained, the price of gold should average around US$1 270 in 2016 and remain near that price in 2017. CHART C.67 Price of gold (U.S dollars an ounce, monthly data) CHART C.68 Demand for gold as an investment (tonnes) 2 000 1 769 1 746 1 064 1 500 1 000 1 070 1 326 478 375 469 452 755 500 2008 2010 2012 2014 2016 Sources: Bloomberg and Ministère des Finances du Québec. Jan. to june 2014 July to dec. Jan. to june July to dec. Sources: World Gold Council and Ministère des Finances du Québec. Jan. to june 2015 2016 The Québec Economic Plan C.64 October 2016 Update
SECTION For personal use only 6. MAIN RISKS THAT MAY INFLUENCE THE FORECAST SCENARIO C The economic and financial forecasts used in the October 2016 Update of the Québec Economic Plan are based on several assumptions, some of which are associated with risks. A number of the risks are external. For example, some economic and financial variables, such as growth in the major economies, oil and other commodity prices, and even financial indicators, might trend in different directions than forecast. Other risks are internal and could drive some of Québec s economic variables in a different direction than expected. Since the release of the Québec Economic Plan of March 2016, some of the risks identified have intensified, while others have attenuated. And new risks have appeared, especially globally. Widespread slowdown in the global economy Since the release of the Québec Economic Plan of March 2016, the significant turmoil in financial markets of the beginning of the year has subsided. The economic scenario used by the Ministère des Finances du Québec is based on the assumption that economic growth will gradually strengthen in the coming years. However, a turnaround in the current economic cycle is still possible, with the global economy still facing major challenges. For example: economic growth might slow in the United States and some emerging economies. Emerging economies are dealing with large debts and important industrial production overcapacities; financial markets could experience significant turbulence again, which could lead to greater risk aversion and an erosion of investor confidence in the economic outlook. the political climate could result in more protectionist measures in several regions of the world. The Québec economy has favourable fundamentals, but could be negatively affected by such developments. For example, an increase in global uncertainties could affect a recovery in investment. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.65
Increased political uncertainty Middle East geopolitical conflicts continue, while political uncertainty has increased, especially in the United States and Europe. The economic scenario is based on the assumption that these elements will have limited influence on the global economic situation. If the political uncertainty were to increase as a result of, say, heightened conflict or an increase in protectionist measures, it could weaken the global economy even further. Brexit an unprecedented event Brexit, an unprecedented event in Europe, is one of the risks that has materialized since March 2016. The uncertainty fuelled by Brexit mostly relates to the negotiations on the United Kingdom s withdrawal from the European Union (EU) and the conditions that will be decided. Thus far, the impact of Brexit on the global economy has been moderate and is expected to remain so. However, the potential economic and political implications of Brexit are numerous. Its negative effects on global economic growth may be more significant if, among other things: the British government is unable to reach an agreement with the EU, in which case UK trade with the EU would be limited; it takes longer to renegotiate deals with other states. If this is the case, Brexit could put a drag on global trade and erode confidence as well as create turmoil in financial markets. Wide fluctuations in oil prices The outlook for oil prices in the October 2016 Update assumes that members of the Organization of Petroleum Exporting Countries (OPEC) will honour the preliminary agreement reached in Algiers in late September to curb oil production. If they do, it should buoy oil prices. However, since some of the variables that cause oil prices to change are unknown, prices could fluctuate widely. For example: strict adherence to the terms of the OPEC agreement and the stance taken by other oil-producing countries, such as Russia, will have major consequences for the market s rebalancing and future oil price trends; weaker growth in the global economy and a quicker rebound in U.S. oil production could drive up global supply, which would translate in lower than expected oil prices. The Québec Economic Plan C.66 October 2016 Update
SECTION For personal use only Wide price fluctuations, which would result in different oil price trends than those forecast, could influence the global growth outlook as well as the outlooks for the Canadian and Québec economies. Unexpected developments in the Canadian economy C Certain risks associated with the economic situation in Canada may influence the growth outlook for Québec. Some of these risks could have a downward effect on Canada s economic growth, in particular the softwood lumber dispute, the persistently low oil prices and the anticipated slowdown in the real estate sector. Other risks could cause Canada s economy to grow at a faster pace than expected. Softwood lumber dispute with the United States Last March, Canada and the United States undertook to renegotiate the softwood lumber trade agreement, which had expired. The previous deal, the Softwood Lumber Agreement (SLA), had been signed in 2006 following a long dispute over stumpage charges for timber harvested in Canadian Crown or public forests. The purpose of the SLA was to provide a framework for Canada-U.S. trade in softwood lumber. The agreement imposed quotas on Canadian companies exporting to the United States as well as lumber tariffs. A new softwood lumber dispute between Canada and the United States puts production and jobs in Canada s forest industry at risk, particularly in Québec and British Columbia. Persistently low oil prices Over the last few years, the drop in oil prices significantly hampered economic activity in Canada s western provinces, slowing Canada s overall economic growth. Oil prices have been gradually increasing in 2016 and, based on the forecast scenario, should continue rising in 2017. If oil prices do not rise, renewed growth in real GDP in Canada s oil-producing provinces will be delayed. However, provinces that do not produce oil would benefit from the low oil prices. The Québec Economy: Recent Developments and Outlook for 2016 and 2017 C.67
Canada s residential sector might see a stronger slowdown In 2016, residential investment in Canada was spurred by significant activity in the Vancouver and Toronto real estate markets. With the demand for new housing being mostly filled already, the residential sector is expected to see an adjustment in the coming years and return to levels more in line with demographics. British Columbia recently introduced an additional property transfer tax for foreign nationals and foreign corporations that buy real estate within the Greater Vancouver Regional District. The goal of these new measures is to cool Vancouver s real estate market. In addition, on October 3, 2016, the Department of Finance Canada announced a series of new measures to stabilize the Canadian residential sector. The measures could have the effect of, among other things, curbing activity and price trends in Canada s home-resale market. A sharper-than-expected slowdown would have a negative impact, particularly in provinces whose real estate market could undergo a correction. These effects could spill over to all of the provinces through economic and financial channels. Higher global growth in some countries Even though the global economy remains fragile, economic growth could be stronger than expected in certain countries or regions. For example: in the United States, a waning of economic and political uncertainties could spur a stronger than expected rebound in business investment; a significant improvement in the outlook for commodities could provide added support to economic growth in commodity-producing emerging economies, such as Brazil and Russia. Stronger economic growth, especially in the United States, would have a positive impact on Québec s international exports and economic growth. The Québec Economic Plan C.68 October 2016 Update
Exhibit 99.9 PUBLIC ACCOUNTS 2015-2016 VOLUME 1 CONSOLIDATED FINANCIAL STATEMENTS OF THE GOUVERNEMENT DU QUÉBEC Fiscal year ended March 31, 2016 Published in accordance with section 86 of the Financial Administration Act (CQLR, chapter A-6.001)
Public Accounts 2015-2016 Volume 1 Legal deposit Bibliothèque et Archives nationales du Québec October 2016 ISSN 0706-2850 (Print version) ISSN 1925-1823 (PDF) Gouvernement du Québec, 2016
His Honour the Honourable J. Michel Doyon Lieutenant-Governor of Québec Parliament Building Québec Your Honour, I am pleased to present you with the Public Accounts of the Gouvernement du Québec for the fiscal year ended March 31, 2016. Carlos Leitão Minister of Finance Québec, October 2016
Mr. Carlos Leitão Minister of Finance Parliament Building Québec Dear Minister, In accordance with the commission entrusted to me, I have the honour of presenting the Public Accounts of the Gouvernement du Québec for the fiscal year ended March 31, 2016. These accounts have been prepared under section 86 of the Financial Administration Act (CQLR, chapter A-6.001), in accordance with the Government's accounting policies. Respectfully yours, Simon-Pierre Falardeau, CPA, CA Comptroller of Finance Québec, October 2016
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 TABLE OF CONTENTS PRESENTATION OF THE PUBLIC ACCOUNTS... 11 ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 1. HIGHLIGHTS FOR THE 2015-2016 FISCAL YEAR... 15 2. OVERVIEW OF BUDGET 2015-2016... 17 3. RISKS AND UNCERTAINTIES... 18 4. VARIANCE ANALYSIS... 20 4.1 COMPARISON OF ACTUAL RESULTS WITH THE BUDGET... 21 4.2 COMPARISON OF ACTUAL RESULTS WITH THE PREVIOUS FISCAL YEAR... 25 5. BALANCED BUDGET ACT... 29 6. ANALYSIS OF MAIN TRENDS... 32 7. RESULTS OF THE INDICATOR ANALYSIS... 44 APPENDIX 1 - FINANCIAL STATISTICS... 56 APPENDIX 2 - INFORMATION BY REPORTING SECTOR... 63 APPENDIX 3 - GLOSSARY... 67 CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF RESPONSIBILITY... 75 INDEPENDENT AUDITOR'S REPORT... 77 CONSOLIDATED STATEMENT OF OPERATIONS... 83 CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT... 84 CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 85 CONSOLIDATED STATEMENT OF CHANGE IN NET DEBT... 86 CONSOLIDATED STATEMENT OF CASH FLOW... 87 7
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES... 89 2. MEASUREMENT UNCERTAINTY... 101 3. ACCOUNTING CHANGES... 102 4. TAX-FUNDED TRANSFERS... 103 5. CASH... 104 6. SHORT-TERM INVESTMENTS... 105 7. ACCOUNTS RECEIVABLE... 106 8. LOANS AND PORTFOLIO INVESTMENTS... 107 9. GENERATIONS FUND... 110 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES... 112 11. DEFERRED REVENUE... 113 12. OTHER LIABILITIES... 115 13. FEDERAL GOVERNMENT TRANSFERS TO BE REPAID... 116 14. PENSION PLANS AND OTHER EMPLOYEE FUTURE BENEFITS... 117 15. RISK MANAGEMENT AND DERIVATIVE INSTRUMENTS... 132 16. DEBTS... 134 17. FIXED ASSETS... 140 18. CONTRACTUAL OBLIGATIONS... 143 19. LOAN GUARANTEES... 148 20. CONTINGENCIES... 151 21. CASH FLOW INFORMATION... 152 22. ASSET-BACKED TERM NOTES (ABTNS)... 154 23. COMPARATIVE FIGURES... 156 8
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 APPENDICES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. NATIONAL ASSEMBLY, APPOINTED PERSONS, GOVERNMENT DEPARTMENTS AND BODIES WHOSE FINANCIAL TRANSACTIONS WERE CONDUCTED FROM THE GENERAL FUND OF THE CONSOLIDATED REVENUE FUND... 157 2. GOVERNMENT BODIES, SPECIAL FUNDS AND SINKING FUNDS... 159 3. ORGANIZATIONS IN THE GOVERNMENT'S HEALTH AND SOCIAL SERVICES AND EDUCATION NETWORKS... 162 4. GOVERNMENT ENTERPRISES... 167 5. GOVERNMENT DEPARTMENTS AND BODIES THAT CONDUCT FIDUCIARY TRANSACTIONS NOT INCLUDED IN THE GOVERNMENT'S REPORTING ENTITY... 168 6. REVENUE... 170 7. EXPENDITURE... 171 8. INVESTMENT IN GOVERNMENT ENTERPRISES... 172 9. SEGMENT DISCLOSURES... 183 10. FIDUCIARY TRANSACTIONS CONDUCTED BY THE GOVERNMENT... 188 9
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Presentation of the Public Accounts The 2015-2016 Public Accounts present the results and financial position of the Gouvernement du Québec. They include a financial analysis to increase their usefulness and transparency. The analysis presents the changes in the main trends for the major consolidated financial statement items. The Ministère des Finances considers that the use of indicators is efficient for studying changes in the state of the Government's finances. Therefore, eleven indicators are presented in the section Analysis of the consolidated financial statements. The 2015-2016 Public Accounts present information on the actual results for the fiscal year ended March 31, 2016. The initial forecasts of the results for this fiscal year were presented in Budget 2015-2016 on March 26, 2015 and revised in The Québec Economic Plan November 2015 Update on November 26, 2015. Preliminary results were presented in Budget 2016-2017 on March 17, 2016. The comparative analysis with the Budget that appears in the present publication was made using the initial forecasts presented in Budget 2015-2016 on March 26, 2015, according to the standards adopted by the Public Sector Accounting Board (PSAB). The Public Accounts for the fiscal year ended March 31, 2016 have been prepared by the Comptroller of Finance for the Minister of Finance in accordance with the accounting policies established by the Conseil du trésor and pursuant to the provisions of section 86 of the Financial Administration Act (CQLR, chapter A-6.001). They are published in two volumes. Preparing the Public Accounts requires the participation and collaboration of many employees from different government departments, funds, bodies, and organizations in the health and social services and education networks as well as employees from government enterprises. We would like to thank all of them for their help in publishing these documents. Volume 1 Consolidated financial statements of the Gouvernement du Québec Volume 1 presents the consolidated financial statements of the Gouvernement du Québec, as well as a financial analysis that facilitates understanding of the transactions carried out in fiscal 2015-2016. The consolidated financial statements consist of many items. A consolidated statement of operations, which accounts for the annual surplus or deficit arising from operations during the fiscal year. It presents the Government's revenue, the cost of services and other expenses for the year. 11
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Presentation of the Public Accounts (cont'd) A consolidated statement of accumulated deficit, which shows the change in the accumulated deficit taking into consideration the results for the fiscal year, items charged directly to it and various restatements stemming from accounting changes. A consolidated statement of financial position, which presents the financial resources of the Gouvernement du Québec as well as its obligations. It establishes the net debt, which consists of the accumulated deficit and non-financial assets. A consolidated statement of change in net debt, which accounts for the combined effect on the net debt of the results for the fiscal year, the change in non-financial assets, items charged directly to the accumulated deficit and restatements stemming from accounting changes. A consolidated statement of cash flow, which provides information on the Government's liquid assets generated by or used during the fiscal year within the context of operating, equity investment, fixed asset investment and financing activities. Notes and appendices, which provide additional information on the items of the consolidated financial statements and which are an integral part of these statements. They also include a summary of the main accounting policies used to prepare the consolidated financial statements, as well as consolidated information by government mission on operations. In accordance with the Auditor General Act (CQLR, chapter V-5.01), the Auditor General of Québec prepares, as an independent auditor, a report included with the Government's consolidated financial statements in which she expresses her opinion on the financial statements. Volume 2 Financial information on the Consolidated Revenue Fund: general fund and special funds Volume 2 presents the financial information on the Consolidated Revenue Fund, which is made up of the general fund and the special funds. This volume is divided into two parts. The first part reports on the revenue of government departments and budget-funded bodies, their authorized appropriations, the expenses and other costs charged to each of these appropriations and, lastly, the financial operations of the specified purpose accounts they administer. The second part presents the revenue of the special funds as well as their approved and realized expenses and investments. 12
ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 1. Highlights for the 2015-2016 fiscal year Consolidated operations FISCAL YEAR ENDED MARCH 31, 2016 (in millions of dollars) Budget 2015-2016 Annual surplus 1 586 1.6% 2015-2016 actual results Annual surplus 3 644 3.6% 2014-2015 actual results Annual surplus 136 0.1% Total revenue 100 160 100.0% Own-source revenue (1) 80 716 80.6% Expenditure (excluding debt service) 88 091 87.9% Total expenditure 98 574 98.4% Total revenue 100 123 100.0% Own-source revenue (1) 81 222 81.1% Expenditure (excluding debt service) 86 470 86.4% Total expenditure 96 479 96.4% Own-source revenue (1) Total 77 398 revenue 80.7% 95 937 100.0% Expenditure (excluding debt service) 85 531 89.2% Total expenditure 95 801 99.9% Federal government transfers 19 444 19.4% Debt service 10 483 10.5% Federal government transfers 18 901 18.9% Debt service 10 009 10.0% Federal government transfers 18 539 19.3% Debt service 10 270 10.7% Note: Based on the data presented in the Summary of consolidated operations table on page 20. The proportions expressed in percentages are determined on the basis of total revenue. (1) Own-source revenue includes Generations Fund revenue of $1 586 M, $1 453 M and $1 279 M for Budget 2015-2016 of March 26, 2015, for actual 2015-2016 results and for actual 2014-2015 results, respectively. Budget balance In Budget 2015-2016 of March 26, 2015 (hereinafter the Budget ), the Government forecast an annual surplus of $1 586 million. Within the meaning of the Balanced Budget Act 1 and, taking into account the allocation of $1 586 million in revenue to the Generations Fund, a balanced budget was forecast for fiscal 2015-2016. The results for fiscal 2015-2016 show an annual surplus of $3 644 million. Taking into account the deposit of $1 453 million in dedicated revenues in the Generations Fund, the budget balance is $2 191 million, an improvement of $2 191 million compared with the Budget forecast. This sum has been allocated in its entirety to the stabilization reserve, in accordance with the Balanced Budget Act. The Government may also decide to deposit a portion in the Generations Fund. 1 CQLR, chapter E-12.00001 15
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 1. Highlights for the 2015-2016 fiscal year (cont'd) Consolidated revenue Total consolidated revenue stood at $100 123 million, which represents a downward adjustment of $37 million compared with the Budget. It was up $4 186 million, or 4.4%, relative to fiscal 2014-2015. The difference between revenue for the current fiscal year and the figure announced in the initial Budget can be explained by lower-than-anticipated revenue. Revenue from consumption taxes, miscellaneous revenue and revenue from federal government transfers are, respectively, $184 million, $769 million and $543 million lower than expected. This was offset in large part by upward adjustments of $1 207 million in income and property taxes, $201 million in duties and permits and $51 million in revenue from government enterprises. The increase of $4 186 million in revenue for the current fiscal year relative to the previous fiscal year can be attributed to revenue increases of $2 738 million in income and property taxes, $860 million in consumption taxes, $546 million in duties and permits, $74 million in miscellaneous revenue and $362 million in federal government transfers as well as by a decrease of $394 million in revenue from government enterprises. Consolidated expenditure Consolidated expenditure stands at $96 479 million, which represents a downward adjustment of $2 095 million, or 2.1%, compared with the Budget forecast. Relative to the previous fiscal year, consolidated expenditure rose by $678 million or 0.7%. Budget 2015-2016 forecast a growth rate of 1.5% for consolidated expenditure, whereas the actual rate was 0.7%. This lower-than-anticipated growth can be attributed to downward adjustments in spending, in 2015-2016, of $187 million for the Health and Social Services mission, $77 million for the Education and Culture mission, $814 million for the Economy and Environment mission, $34 million for the Support for Individuals and Families mission, $509 million for the Administration and Justice mission and $474 million for Debt service. The increase of $678 million in expenditure for fiscal 2015-2016 relative to the previous fiscal year is due to spending increases of $709 million for the Health and Social Services mission, $127 million for the Education and Culture mission and $186 million for the Economy and Environment mission. This is offset in part by a decrease of $82 million in spending for the Support for Individuals and Families mission and $261 million for Debt service. 16
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 2. Overview of Budget 2015-2016 The annual surplus forecast in Budget 2015-2016 was $1 586 million. After the allocation of $1 586 million in revenue to the Generations Fund, a return to a balanced budget was forecast within the meaning of the Balanced Budget Act. Own-source revenue Own-source revenue, excluding that from government enterprises was expected to grow by 5.3%. This growth reflected in particular the anticipated acceleration of economic activity in Québec and the impact of measures implemented to achieve a balanced budget in 2015-2016. Revenue from government enterprises Revenue from government enterprises in 2015-2016 was expected to fall by 7.0% before the allocation to the Generations Fund, mainly because of Hydro-Québec's results in 2014-2015, which reflected, for that year, the impact of the cold weather. Federal government transfers Federal government transfer revenue was expected to increase by 3.9% in 2015-2016. This change can be explained mainly by a 6.0% increase in health transfers arising essentially from annual growth of 6.0% in the Canada Health Transfer (CHT) cash envelope for the provinces as a whole, and by a 5.9% increase in other programs, particularly because of a revenue increase linked to the Société de financement des infrastructures locales du Québec (SOFIL). Consolidated expenditure Budget 2015-2016 anticipated growth of 1.5% in consolidated expenditure, excluding debt service. The budget forecast an increase of $535 million in spending for the Health and Social Services mission, $177 million in spending for the Education and Culture mission, $449 million in spending for the Economy and Environment mission, $369 million in spending for the Administration and Justice mission as well as a decrease of $216 million in spending for the Support for Individuals and Families mission. Consolidated debt service Debt service was expected to climb by 1.5%. This change was attributed in particular to the anticipated growth in the debt. 17
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 3. Risks and uncertainties The following factors are elements of risk and uncertainty that are not directly dependent on the Government but that can cause actual results to differ from forecast results, particularly: the economic forecasts the Government uses to determine its annual budgetary revenue, particularly those concerning changes in economic growth, employment and the Consumer Price Index. For example, a 1.0% difference in nominal GDP has an impact of about $650 million on the Government's own-source revenue; the level of program spending, whose cost is related to the economic situation. For example, changes in the labour market affect the cost of employment assistance and income security programs. Similarly, in the health sector, the aging of the population raises the risk of cost overruns for medication and public services; the economic, taxation and population data the Government uses to determine revenue from federal government transfers, as well as the negotiations carried out regularly with the federal government. These data and negotiations can both affect federal government transfer revenue; unforeseen situations such as natural catastrophes, work stoppages, etc.; the change in interest rates, which has an impact on debt service, is presented in Note 15 (p. 132,133) of the consolidated financial statements; the risk that a financial intermediary will default on its contractual obligations (credit risk) is presented in Note 15 (p. 132,133) of the consolidated financial statements; the settlement of certain claims and lawsuits pending against the Government before the courts, which are presented in Note 20 (p. 151) of the consolidated financial statements. The consolidated financial statements also set forth in Note 2 (p. 101) the uncertainties to which the estimates needed to prepare these statements are subject. To reduce its exposure to risk, the Government develops management strategies for some of these variables. With the help of economic, fiscal and budgetary policies, the Government can influence its revenue and expenditure (other than debt service) by: using forecasts that reflect the consensus of forecasters; monitoring economic, budgetary and financial indicators, including the monthly reports on its budgetary revenue and expenditure, and monitoring the results of the consolidated entities; implementing economic support measures. 18
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 3. Risks and uncertainties (cont'd) A government cannot prevent a recession or the impact of an economic slowdown single-handedly. However, it has the necessary means to play a stabilizing role in order to offset the effects of an economic slowdown and speed up the recovery. In addition, financing policies also lead the Government to have an impact on its debt service through various strategies, as described in detail in Note 15 (p. 132,133) of the consolidated financial statements. 19
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 4. Variance analysis Summary of consolidated operations FISCAL YEAR ENDED MARCH 31, 2016 (in millions of dollars) REVENUE (1) (2) $ % $ % Income and property taxes 43 266 44 473 1 207 2.8 41 735 2 738 6.6 Consumption taxes 18 701 18 517 (184) (1.0) 17 657 860 4.9 Duties and permits 3 627 3 828 201 5.5 3 282 546 16.6 Miscellaneous revenue 10 160 9 391 (769) (7.6) 9 317 74 0.8 Revenue from government enterprises 4 962 5 013 51 1.0 5 407 (394) (7.3) Own-source revenue 80 716 81 222 506 0.6 77 398 3 824 4.9 Federal government transfers 19 444 18 901 (543) (2.8) 18 539 362 2.0 Total revenue 100 160 100 123 (37) (0.0) 95 937 4 186 4.4 EXPENDITURE Budget 2015-2016 Actual results as at March 31, 2016 Change compared with Budget Actual results as at March 31, 2015 Change compared with actual results for the previous fiscal year Health and Social Services 37 688 37 501 (187) (0.5) 36 792 709 1.9 Education and Culture 21 074 20 997 (77) (0.4) 20 870 127 0.6 Economy and Environment 12 511 11 697 (814) (6.5) 11 511 186 1.6 Support for Individuals and Families 9 623 9 589 (34) (0.4) 9 671 (82) (0.8) Administration and Justice 7 195 6 686 (509) (7.1) 6 687 (1) (0.0) Sub-total 88 091 86 470 (1 621) (1.8) 85 531 939 1.1 Debt service 10 483 10 009 (474) (4.5) 10 270 (261) (2.5) Total expenditure 98 574 96 479 (2 095) (2.1) 95 801 678 0.7 ANNUAL SURPLUS 1 586 3 644 2 058 136 3 508 (1) Based on the data presented in Budget 2015-2016 of the Ministère des Finances tabled on March 26, 2015. Certain figures from Budget 2015-2016 have been reclassified for consistency with the presentation adopted in the consolidated financial statements. (2) Certain figures for 2014-2015 have been reclassified for consistency with the presentation adopted as at March 31, 2016. 20
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 4. Variance analysis (cont'd) 4.1 Comparison of actual results with the Budget Consolidated revenue Consolidated revenue for fiscal 2015-2016 was $37 million lower than forecast in the Budget, owing to an upward adjustment of $506 million in own-source revenue and to a downward revision of $543 million in federal government transfers. Own-source revenue The upward adjustment of $506 million in own-source revenue compared with the Budget results from the combination of the following changes: revenue from income and property taxes that was $1 207 million higher than expected, due in particular to: higher-than-anticipated personal income tax revenue, reflected in particular by a higher-than-expected level of taxable income in 2015, stronger-than-anticipated growth in corporate tax revenue, particularly instalment payments, despite the downward adjustment in the growth of the net operating surplus of corporations since the Budget; a $184-million downward adjustment in consumption tax revenue, stemming notably from the fact that revenue from the sales tax was lower than forecast as a result of weaker-than-expected household consumption; a $201-million upward adjustment in duties and permits arising in particular from higher-thanexpected revenue from emission allowances under Québec s cap-and-trade system for greenhouse gas emission allowances; miscellaneous revenue that was $769 million lower than forecast, due primarily to: a decrease of $288 million in interest income and revenue from fines, forfeitures and recoveries, a decrease of $186 million in the realized investment income of the Generations Fund, a decrease of miscellaneous revenue in several other bodies; a $51-million upward adjustment in revenue from government enterprises, owing primarily to the fact that the results of Loto-Québec and Société des alcools du Québec were better than anticipated. 21
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 4. Variance analysis (cont'd) 4.1 Comparison of actual results with the Budget (cont'd) Consolidated revenue (cont'd) Federal government transfers Federal government transfers were $543 million lower than forecast in the Budget. This difference can be explained mainly by a downward adjustment of: $112 million in health transfers and $67 million in transfers for post-secondary education and social programs, attributable mainly to the upward adjustment of the value of the special Québec abatement, a value that is substracted from these transfers; $106 million in the revenue of the Canada Student Loans Program on account of a lower-thananticipated compensatory payment; $86 million in recognized revenue from the federal gasoline tax for the funding of municipal infrastructure; $82 million in revenue from the Building Canada Fund; $55 million in transfers for Lac-Mégantic due to the lower-than-anticipated cost of decontaminating the downtown area; $41 million in revenue from the Canada Mortgage and Housing Corporation, owing in particular to a decrease in the operating deficit of subsidized bodies (low-cost housing); $21 million in revenue from the Program for processing organic matter using biomethanation and composting on account of delays in the progress of projects. 22
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 4. Variance analysis (cont'd) 4.1 Comparison of actual results with the Budget (cont'd) Consolidated expenditure Total consolidated expenditure for fiscal 2015-2016, excluding debt service, stood at $86 470 million, which represents a downward adjustment of $1 621 million compared with the Budget forecast. The differences in the consolidated expenditure for each mission can be attributed to: a $187-million decrease in spending for the Health and Social Services mission, stemming essentially from a decline of: $194 million in the operating and transfer expenditures of the health and social services network, particularly because of the reorganization of administrative and support services and a decrease in spending on medications, fuel and laundry services; a $77-million decrease in spending for the Education and Culture mission, resulting primarily from: a $147-million decrease in remuneration expenses in school boards and CEGEPs because of strike days, a lump-sum payment of $85 million following the negotiation of collective agreements in school boards; an $814-million decrease in spending for the Economy and Environment mission, stemming notably from the decrease of: $272 million in expenditures arising notably from the change in the implementation rate of the 2013-2020 Climate Change Action Plan, $122 million in the contribution of La Financière agricole du Québec for its financing, insurance and income protection programs, essentially the AgriStability and Farm Income Stabilization Insurance programs, because of favourable economic conditions, $118 million in transfer expenditures to municipalities and municipal bodies on account of delays in the construction of municipal infrastructure projects, $97 million in provisions for the Economic Development Fund, $88 million in transfer expenditures, due in particular to a decrease in the operating deficit of subsidized bodies (low-cost housing) and to delays in the implementation of projects under the AccèsLogis Québec program; 23
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 4. Variance analysis (cont'd) 4.1 Comparison of actual results with the Budget (cont'd) Consolidated expenditure (cont'd) a $34-million decrease in spending for the Support for Individuals and Families mission, resulting in particular from a decline of $17 million due to the lower costs associated with legal aid and the application of Chapter III of the Act respecting legal aid and the provision of certain other legal services; a $509-million reduction in spending for the Administration and Justice mission, owing in particular to a decrease of: $235 million because of the non-utilization of sums provided for in the contingency fund, $63 million in spending for the pension plans due to a decrease in the public service workforce and lower-than-anticipated salary indexation, $21 million in the expenditures of the Commission des normes du travail due to the transfer of its activities as of January 1, 2016 to the Commission des normes, de l équité, de la santé et de la sécurité du travail, whose activities are not included in the Government s reporting entity, $10 million following a review of the subsidy program for sales recording modules in bars, $111 million attributable to lower-than-anticipated expenditures under the programs of certain bodies or departments. Consolidated debt service was $474 million less than forecast in the Budget, mainly because of weakerthan-expected interest rates. 24
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 4. Variance analysis (cont'd) 4.2 Comparison of actual results with the previous fiscal year Consolidated revenue The Government's total revenue for fiscal 2015-2016 was up $4 186 million from the previous fiscal year, as a result of an increase of $3 824 million in own-source revenue and of $362 million in federal government transfers. Own-source revenue The increase of $3 824 million, or 4.9%, in own-source revenue is due to: a $2 738-million climb in revenue from income and property taxes, caused primarily by: an increase of $1 206 million in personal income tax revenue, stemming mainly from growth in the average weekly remuneration and number of jobs compared with the previous fiscal year, a rise in retirement income and an increase in income subject to personal income tax, a $1 179-million climb in corporate tax revenue, largely attributable to the increase in the net operating surplus of corporations, a $217-million rise in contributions for health services, stemming mainly from growth in the average weekly remuneration and number of jobs compared with the previous fiscal year; an $860-million increase in revenue from consumption taxes, resulting primarily from: growth of $719 million in sales tax revenue, attributable largely to an increase in taxable sales, growth of $91 million in fuel tax revenue, due primarily to an increase in taxable sales; a $546-million rise in revenue from duties and permits, which is explained mainly by: an increase of $456 million in greenhouse gas emission allowances resulting from: a climb of $582 million in revenue from the auction of these allowances, a $126-million decrease in revenue from the duty on fuel and fossil fuels, owing to the end of the collection of this duty from energy distributors on December 31, 2014, a $24-million rise in registration fees; a $74-million increase in miscellaneous revenue, stemming primarily from a $70-million increase in interest income, which can be explained notably by a downward adjustment of revenue in 2014-2015 for the settlement of disputes; 25
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 4. Variance analysis (cont'd) 4.2 Comparison of actual results with the previous fiscal year (cont'd) Consolidated revenue (cont'd) Own-source revenue (cont'd) a $394-million reduction in revenue from government enterprises, owing primarily to: a decrease of $565 million in Hydro-Québec s net results, which can be attributed mainly to decreased demand because of the warmer weather in winter 2016, growth of $176 million in Loto-Québec s net results, attributable in particular to increased lottery sales because of the large number of major prizes. Federal government transfers The increase of $362 million, or 2.0%, in federal government transfers, can be explained in particular by: a $235-million rise in equalization revenue, stemming primarily from the increase in the Canadian equalization envelope, tied to growth in Canada s nominal GDP; a $205-million increase in health transfer revenue, explained essentially by annual growth of 6.0% in the Canada Health Transfer (CHT) cash envelope for the provinces as a whole, offset by the increase of the value of the special Québec abatement, a value that is subtracted from these transfers. 26
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 4. Variance analysis (cont'd) 4.2 Comparison of actual results with the previous fiscal year (cont'd) Consolidated expenditure The increase of $939 million, or 1.1%, in consolidated expenditure excluding debt service can be attributed to the following changes: an increase of $709 million, or 1.9%, in spending for the Health and Social Services mission, resulting from: growth of $454 million resulting from the increase in the cost of services funded by the Régie de l assurance maladie du Québec, a $106-million climb in spending attributable to an increase in the cost of medications for people covered by the Public Prescription Drug Insurance Plan and the cost of the tax credit for home-support for seniors, a $101-million rise in the depreciation expenses of fixed assets of organizations in the health and social services network; an increase of $127 million, or 0.6%, in spending for the Education and Culture mission, resulting in particular from: a $74-million rise in the amount for the refundable tax credit for film production, growth of $52 million in scholarships provided with student loans; an increase of $186 million, or 1.6%, in spending for the Economy and Environment mission, due in particular to the following changes: a $337-million rise in the transfer expenditures of the Société de financement des infrastructures locales du Québec, attributable mainly to the implementation of the 2014-2019 plan for drinking water, wastewater and public transit infrastructure programs, a $178-million increase in the transfer expenditures of the Land Transportation Network Fund, attributable notably to the renewal of the assistance program for the development of shared transportation and the local roads assistance program for the 2015 and 2016 calendar years, a $128-million decrease in expenditures for losses on guaranteed financial initiatives of the Economic Development Fund and the Ministère de l Économie, de la Science et de l Innovation owing to the improved financial situation of businesses that benefit from these initiatives, a decrease of $78 million in the transfer expenditures of the Territories Development Fund, stemming mainly from the end of agreements with local development centres, 27
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 4. Variance analysis (cont'd) 4.2 Comparison of actual results with the previous fiscal year (cont'd) Consolidated expenditure (cont'd) a decrease of $51 million in the transfer expenditures of the Société d habitation du Québec, which can be explained in particular by the pace of projects under way for the AccèsLogis Québec program, a decline of $45 million in the transfer expenditures of La Financière agricole du Québec, attributable mainly to a decrease in the contribution of the Fonds d assurance-stabilisation des revenus agricoles; a decrease of $82 million, or 0.8%, in spending for the Support for Individuals and Families mission, resulting in particular from: a $44-million decline in subsidies of the Ministère du Travail, de l Emploi et de la Solidarité sociale, particularly because of a decrease in clientele for the Youth Alternative, Social Assistance and Social Solidarity programs, a $54-million decline in the tax credit amounts claimed for the work premium, an increase of $33 million in the tax credit amounts claimed for childcare expenses. Lastly, debt service was down $261 million, or 2.5%, from 2014-2015. This decrease is due mainly to the growth in the income of the Retirement Plans Sinking Fund. The income of the Retirement Plans Sinking Fund is applied against debt service. 28
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 5. Balanced Budget Act Budget balance The purpose of the Balanced Budget Act is to balance the budget of the Québec government. It stipulates that the Government may not incur a budgetary deficit. Fiscal 2015-2016 ended with a budget balance of $2 191 million, which takes into account the allocation of $1 453 million to the Generations Fund. Budget balance within the meaning of the Balanced Budget Act FISCAL YEAR ENDED MARCH 31, 2016 (in millions of dollars) Budget 2015-2016 Actual results as at March 31, 2016 Annual surplus 1 586 3 644 Revenue of the Generations Fund (1 586) (1 453) Budget balance 2 191 29
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 5. Balanced Budget Act (cont'd) Stabilization reserve The Act provides for the establishment of a stabilization reserve to facilitate the Government s multi-year budget planning. The stabilization reserve is used to maintain a balanced budget; its balance is reduced by the amount needed to achieve that objective. In addition, the government may, on the conditions it determines, use the stabilization reserve to deposit sums in the Generations Fund. Its balance is reduced by the amount deposited in the Fund. The sums allocated annually to the stabilization reserve correspond to the amount of the recorded surplus for that fiscal year, i.e. a budget balance that is greater than zero, established in accordance with the provisions of the Balanced Budget Act. The surplus of $2 191 million recorded in 2015-2016 has thus been allocated to the stabilization reserve. The Government may also decide to deposit a portion in the Generations Fund. Stabilization reserve FISCAL YEAR ENDED MARCH 31, 2016 (in millions of dollars) 2016 2 016 Opening balance - Surplus for the year 2 191 2 191 Closing balance 2 191 2 191 30
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 5. Balanced Budget Act (cont'd) Generations Fund Budget 2015-2016 forecast that the revenue of the Generations Fund would amount to $1 586 million. Ultimately, the fund's revenue stood at $1 453 million, or $133 million less than forecast. The fund's balance was $8 522 million as at March 31, 2016. Statement of change in the balance of the Generations Fund FISCAL YEAR ENDED MARCH 31, 2016 (in millions of dollars) Budget 2016 Actual results 2015 Actual results Opening balance 6 912 6 938 5 659 Own-source revenue Consumption taxes Specific tax on alcoholic beverages 100 100 100 0 0 0 Duties and permits 0 0 0 Water-power royalties 756 741 761 Mining revenues 116 161 - Miscellaneous revenue Unclaimed property 25 55 32 Investment income 484 298 315 Revenue from government enterprises, taken out of dividends Hydro-Québec Indexation of the average cost of heritage pool electricity 105 98 71 Total own-source revenue 1 586 1 453 1 279 Deposit from the accumulated surplus of the Commission des normes du travail 89 131 - Closing balance 8 587 8 522 6 938 Note: Based on the data presented in Note 9 of the consolidated financial statements (p. 110, 111). 31
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 6. Analysis of main trends The main trends analysis presented in this section uses data from the consolidated financial statements of the Gouvernement du Québec. The data used to determine the trends presented in this section must be analyzed taking into account the impact of the line-by-line consolidation of organizations in the health and social services and education networks in 2009-2010. Previously, such organizations were accounted for using the modified equity method. For the purpose of calculating the annualized growth of revenue and expenditure, the data for 2009-2010 and subsequent years were brought in on a comparable basis, by taking into account the organizations in the health and social services and education networks using the modified equity method. 32
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 6. Analysis of main trends (cont'd) Budget balance within the meaning of the Balanced Budget Act Change in revenue and expenditure (in millions of dollars) Change in budget balance (in millions of dollars) 105 000 100 000 95 000 90 000 85 000 80 000 75 000 70 000 65 000 60 000 2006-2007 Consolidated revenue Consolidated expenditure 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 4 000 3 000 2 000 1 000 0-1 000-2 000-3 000-4 000 2006-2007 Annual surplus (deficit) Budget balance Allocation to the reserve Use of the reserve 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Note: The difference between the annual surplus (deficit) in the financial statements and the budget balance within the meaning of the Balanced Budget Act, stems mainly from the revenue allocated to the Generations Fund, the use of the stabilization reserve to maintain a balanced budget in a budgetary deficit situation, the taking into account of adjustments related to accounting changes, and the exclusion, in 2012-2013, of the loss of $1 876 M arising from discontinued operations following the closure of Hydro-Québec's Gentilly-2 nuclear generating station. In fiscal 2006-2007 and 2007-2008, surpluses were posted to the stabilization reserve. In 2008-2009 and 2009-2010, the financial crisis and the global recession led to a substantial deterioration in the Government's financial balances. The use of the stabilization reserve reduced the budget balance within the meaning of the Balanced Budget Act to zero in 2008-2009. The provisions of this Act, as adopted on April 21, 2015, which prohibit a budgetary deficit, did not apply to the 2009-2010 to 2014-2015 fiscal years. Over that period, the Government showed budgetary deficits annually in compliance with the Act. The budget balance for 2015-2016 was $2 191 million and it has been allocated to the stabilization reserve. 33
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 6. Analysis of main trends (cont'd) Revenue Change in consolidated revenue REVENUE BY SOURCE (in millions of dollars) 110 000 100 000 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000-2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Consolidated revenue Income and property taxes Consumption taxes Federal government transfers Government enterprises Other rev enue(¹) (1) Other revenue includes revenue from duties and permits, miscellaneous revenue and Generations Fund revenue. The Government's consolidated revenue rose from $69.6 billion to $100.1 billion from fiscal 2006-2007 to 2015-2016. The annual average growth of this revenue was 3.6%, while that of GDP was 3.0% over the same period. The own-source revenue of organizations in the health and social services and education networks has been included in consolidated revenue ever since these networks were consolidated line by line in 2009-2010. Such revenue, which amounts to roughly $4.0 billion, includes, among other things, school property taxes and various user contributions including tuition fees. Total revenue grew constantly, except in 2008-2009, when a decrease was recorded for revenue from income and property taxes. 34
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 6. Analysis of main trends (cont'd) Revenue (cont'd) Change in consolidated revenue (cont'd) Income and property taxes Revenue from income and property taxes increased from 2006-2007 to 2007-2008. It decreased in 2008-2009 and 2009-2010, due notably to the impact of the financial crisis and the recession on reported income as well as the fiscal measures implemented under the economic action plan to support the economy during the recession. The decline in income and property tax revenue also reflects the lowering of personal income tax in 2008 and the impact of the other fiscal measures announced in the 2007-2008 to 2009-2010 budgets on corporate taxes. Income tax revenue resumed its upward progression, reaching $44 473 million in 2015-2016. It grew by 3.0% per year on average from 2006-2007 to 2015-2016. Consumption taxes Revenue from consumption taxes increased from $12 851 million in 2006-2007 to $18 517 million in 2015-2016. The average annual growth rate for the period was 4.3% owing to sustained growth in retail sales, the successive one-percentage-point increases in the QST rate as of January 1, 2011 and January 1, 2012, and the harmonization of the QST with the GST as of January 1, 2013 for financial institutions. It has grown regularly since 2006-2007, except in 2009-2010 when it fell slightly. Federal government transfers Federal government transfer revenue rose from $11 970 million in 2006-2007 to $18 901 million in 2015-2016. Federal government transfer revenue grew by an average of 5.1% per year over that period. It thus increased from 2006-2007 to 2010-2011, despite the recognition in 2011-2012 of a decrease resulting mainly from a decline in equalization revenue because of Québec's relatively good economic performance. Federal government transfer revenue grew in 2012-2013 and 2013-2014, notably because of payments totalling $2 200 million in federal compensation for harmonization of the sales taxes. Federal transfer revenue was fairly stable in 2014-2015 compared with the previous year and rose again in 2015-2016, particularly because of an increase in health transfers and equalization payments. Government enterprises Revenue from government enterprises, which consists mainly of the results of Hydro-Québec, Loto-Québec and the Société des alcools du Québec, went from $5 716 million in 2006-2007 to $5 013 million in 2015-2016. Revenue from government enterprises decreased by an average of 1.4% per year during that period, largely because Hydro-Québec s net earnings also fell at that time. 35
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 6. Analysis of main trends (cont'd) Revenue (cont'd) Change in consolidated revenue (cont'd) Other revenue Lastly, other revenue grew substantially from 2006-2007 to 2015-2016 owing to, among other things: the addition of user contributions and tuition fees following the line-by-line consolidation of organizations in the health and social services and education networks as of 2009-2010; the rise in revenue from penalties and interest related to the increase in assessments made by the Agence du revenu du Québec in recent years as part of efforts to fight tax evasion; the taking into account of water-power royalties and the other Generations Fund revenue as of January 1, 2007. 36
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 6. Analysis of main trends (cont'd) Expenditure Change in consolidated expenditure EXPENDITURE BY MISSION (in millions of dollars) 100 000 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000-2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Consolidated expenditure Health and Social Services Education and Culture Other missions(¹) Debt Service (1) Other missions include the Economy and Environment, Support for Individuals and Families and Administration and Justice missions. Between 2006-2007 and 2015-2016, the Government's consolidated expenditure increased by $28.9 billion, from $67.6 billion to $96.5 billion. The average annual growth of this spending was 3.5%. Consolidated expenditure has risen since 2009-2010 due to the line-by-line consolidation of organizations in the health and social services and education networks. The impact of this spending on the annual deficit has been offset by including the networks' own-source revenue in consolidated revenue. In 2009-2010, consolidated expenditure increased by $3.7 billion. Health and Social Services and Education and Culture The expenditures of the Health and Social Services and Education and Culture missions have climbed constantly, and this trend has been even more pronounced in the health sector. As at March 31, 2016, spending for health and education accounted for 60.7% of consolidated expenditure and, of that share, 38.9% was for the Health and Social Services mission and 21.8% for the Education and Culture mission. 37
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 6. Analysis of main trends (cont'd) Expenditure (cont'd) Change in consolidated expenditure (cont'd) Other missions The expenditures of all the other missions have also increased in recent years, particularly because of: the increase in spending related to investments in road network improvement, development and maintenance and in transportation systems; growth in spending on municipal affairs and the regions, particularly to improve access to housing and to contribute to the repair and construction of water supply and sewer systems and the treatment of municipal wastewater in all regions of Québec; growth in financial support for childcare centres and other day care services; the creation of new government bodies, such as the Société de financement des infrastructures locales du Québec, to provide municipal bodies with financial assistance for carrying out their infrastructure projects and the Green Fund, as part of measures to foster sustainable development and offer financial support to organizations active in the environment field; the increase in the budgets allocated to public safety, notably to cover costs related to the Sûreté du Québec, correctional services and policing affairs; the increase in the expense related to the allowance for doubtful accounts, owing to the increase in assessments by the Agence du revenu du Québec as part of efforts to fight tax evasion. Debt service Debt service increased by an average of 1.3% per year between 2006-2007 and 2015-2016. It stood at $10 009 million in 2015-2016. 38
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 6. Analysis of main trends (cont'd) Fixed assets Change in the net book value of fixed assets (in millions of dollars) 70 000 65 000 60 000 55 000 50 000 45 000 40 000 35 000 30 000 25 000 20 000 15 000 10 000 18 026 Consolidated networks at modified equity value 19 193 21 960 41 828 46 751 51 822 56 685 60 695 Line-by -line consolidated networks 63 675 66 370 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 The net book value of fixed assets increased by $2.7 billion over the past year, from $63.7 billion as at March 31, 2015 to $66.4 billion as at March 31, 2016. This shows that annual investments in fixed assets have outstripped the related annual depreciation of the Government's fixed assets as a whole. The remaining useful life of fixed assets is thus better today than it was a few years ago. In 2009-2010, the increase of $16.8 billion in the net book value of fixed assets is due to the addition of the stock of fixed assets of organizations in the health and social services and education networks following the line-by-line consolidation of these organizations. Previously, such organizations were accounted for using the modified equity method. Fixed assets can be broken down into several different categories, including complex networks, which consist mainly of net investments in road infrastructure. Such investments accounted for 37.0% of the total net book value of fixed assets as at March 31, 2016. 39
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 6. Analysis of main trends (cont'd) Gross debt Government's gross debt FISCAL YEAR ENDED MARCH 31, 2016 (in millions of dollars) Actual results as at March 31, 2016 Actual results as at March 31, 2015 Debts before deferred foreign exchange gains (losses) 193 945 192 750 Less Debt contracted by the Financing Fund to finance government entreprises (308) (383) 193 637 192 367 Plus Pension plans and other employee future benefits 26 745 28 172 Less Generations Fund (8 522) (6 938) Gross debt including advance borrowings 211 860 213 601 Less Advance borrowings (8 513) (9 644) Gross debt 203 347 203 957 As a % of nominal GDP 53.8% 55.1% Change in the Government's gross debt (in millions of dollars) 220 000 200 000 183 384 191 866 197 807 (1) 203 957 203 347 180 000 163 318 173 436 160 000 144 505 149 225 152 514 140 000 120 000 100 000 Consolidated networks at modified equity value Line-by -line consolidated networks 80 000 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 (1) The value of the gross debt as at March 31, 2014 was increased by $709 M to reflect the taking over by Financement-Québec of loans belonging to the Financing Fund made to entities not included in the Government's reporting entity. 40
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 6. Analysis of main trends (cont'd) Gross debt (cont'd) Since the line-by-line consolidation of the financial results of organizations in the health and social services and education networks in 2009-2010, all debts contracted by these organizations have been included in those of the Government. Previously, only the portion of debt contracted by these organizations with bodies included in the Government's reporting entity were taken into account. To take the different accounting methods into account, the gross debt trend analysis has been presented in two periods. 41
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 6. Analysis of main trends (cont'd) Gross debt (cont'd) Increase of the gross debt from March 31, 2007 to March 31, 2009 The gross debt, which stood at $144.5 billion as at March 31, 2007, reached $152.5 billion as at March 31, 2009. This represents an increase of $8.0 billion, resulting from: investments of $3.9 billion by the Government in its fixed assets; investments, loans and advances of $3.6 billion, some of which were made to government enterprises; a $1.1-billion increase in the Government's investments in the health and social services and education networks due notably to loans by Financement-Québec to finance their fixed assets; the $0.7 billion change in other factors. In addition, the payments to the Generations Fund reduced the gross debt by nearly $1.4 billion. Factors responsible for growth in the Government's gross debt from March 31, 2007 to March 31, 2009 (in millions of dollars) 3 905 (48.8%) 3 624 (45.2%) 1 109 (13.8%) 739 (9.3%) 0 (0%) -1 368 (-17.1%) Net fixed assets Investments, loans and advances Net investment in the networks Budgetary deficits (surpluses) Other factors(¹) Generations Fund Note: The data for 2009-2010 and thereafter are not included in this chart because, following the line-by-line consolidation of the health and social services and education networks, they were not comparable with the data for 2006-2007 to 2008-2009. (1) Other factors include, in particular, the change in Other accounts, such as accounts receivable and accounts payable, and the change in the value of the debt in foreign currency. 42
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 6. Analysis of main trends (cont'd) Gross debt (cont'd) Increase of the gross debt from March 31, 2009 to March 31, 2016 Once the gross debt as at March 31, 2009 had been restated, following the line-by-line consolidation of organizations in the health and social services and education networks, it stood at $157.6 billion. It amounted to $203.3 billion as at March 31, 2016. Accordingly, for fiscal 2009-2010 to 2015-2016, the Government's gross debt rose by $45.7 billion. This increase is due to: investments of $28.7 billion by the Government in its fixed assets; budgetary deficits of $14.2 billion; investments, loans and advances totalling $11.1 billion, some of which were made to government enterprises. The increase in the gross debt has been offset by: deposits in the Generations Fund, which brought the gross debt down by $7.6 billion; the change in other factors, which lowered the gross debt by $0.7 billion. Factors responsible for growth in the Government's gross debt from March 31, 2009 to March 31, 2016 (in millions of dollars) 28 735 (62.9%) 1 876 14 204 (31.1%) 11 076 (24.2%) 12 328-728 (-1.6%) -7 570 (-16.6%) Net fixed assets Budgetary deficits (surpluses)(¹) Investments, loans and advances Other factors(²) Generations Fund (1) The budgetary deficits (surpluses) include the loss of $1 876 M arising from discontinued operations following the closure of the Gentilly-2 nuclear generating station in 2012-2013. (2) Other factors include, in particular, the change in Other accounts, such as accounts receivable and accounts payable, and the change in the value of the debt in foreign currency. 43
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 7. Results of the indicator analysis The financial indicator analysis aims primarily to clarify and explain the information contained in the consolidated financial statements. The Government presents eleven indicators to assess the state of its finances. These indicators are based on those proposed by the Public Sector Accounting Board in statements of recommended practices. The 2006-2007 accounting reform made it possible to bring the Government's accounting policies into complete conformity with Canadian public sector accounting standards. It also made it possible to integrate the organizations in the health and social services and education networks into the Government's reporting entity, initially at modified equity value and subsequently, in 2009-2010, on a line-by-line consolidation basis. For the purposes of this section, gross domestic product (GDP) corresponds to nominal gross domestic product. 44
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 7. Results of the indicator analysis (cont'd) Indicator 1: Assets (financial and non-financial) to total liabilities This indicator illustrates the extent to which the Government finances its current operations through borrowings. A ratio of over 100% indicates that a surplus was accumulated in the past and that the value of the Government's financial and non-financial assets is higher than that of its liabilities. A ratio of less than 100% indicates that a deficit was accumulated in the past and that the value of the Government's financial and non-financial assets is lower than that of its liabilities. An upward ratio illustrates a favourable trend. Financial and non financial assets (as a percentage of total liabilities) 54.0 52.0 50.0 48.0 46.0 44.0 42.0 40.0 38.0 36.0 34.0 32.0 30.0 44.2 45.4 Consolidated networks at modified equity value 44.1 45.6 48.2 49.4 50.3 50.1 Line-by -line consolidated networks 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 52.6 53.9 The ratio of financial and non-financial assets to total liabilities was 44.2% in 2006-2007. It rose to 45.6% as at March 31, 2010 due to the line-by-line consolidation of organizations in the health and social services and education networks in 2009-2010. The ratio stood at 53.9% as at March 31, 2016. Taking the accumulated deficit into account, the value of assets is still lower than that of liabilities. In addition, an improvement can be observed in the ratio, showing that assets have climbed at a faster rate than liabilities. Over the past years, borrowings have been used mainly to finance fixed asset acquisitions. 45
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 7. Results of the indicator analysis (cont'd) Indicator 2: Gross debt to total revenue This indicator is intended to put the size of the Government's gross debt into perspective by comparing it with the Government's revenue. A declining ratio indicates a decrease in the relative weight of the gross debt. Gross debt (as a percentage of total revenue) 270.0 260.0 250.0 240.0 230.0 220.0 Consolidated networks at modified equity value Line-by -line consolidated networks 210.0 200.0 190.0 207.6 204.1 208.7 207.8 209.3 212.6 218.3 (1) (2) 212.1 212.6 203.1 180.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 (1) The increase in the ratio in 2012-2013 is due mainly to the recording of the loss of $1 876 M arising from discontinued operations following the closure of Hydro-Québec's Gentilly-2 nuclear generating station, which reduced revenue accordingly. Excluding this loss, the ratio amounts to 213.7%. (2) The value of the gross debt as at March 31, 2014 was increased by $709 M to reflect the taking over by Financement-Québec of loans belonging to the Financing Fund made to entities not included in the Government's reporting entity. In 2006-2007, the gross debt as a percentage of total revenue stood at 207.6%. From 2006-2007 to 2008-2009, the ratio increased slightly from 207.6% to 208.7%. From 2009-2010 to 2012-2013, it rose again, from 207.8% to 218.3%. In 2015-2016, it stood at 203.1%, a decrease compared to 2014-2015. 46
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 7. Results of the indicator analysis (cont'd) Indicator 3: Expenditures by mission to total expenditure This indicator illustrates the trend in Government spending for a particular mission over time. To ensure the sustainability of all programs, the growth of spending for a mission must not be substantially higher than that of total spending. Expenditures by mission (as a percentage of total expenditure) 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Health and Social Services Education and Culture Other missions(¹) Debt Service (1) Other missions include the Economy and Environment, Support for Individuals and Families and Administration and Justice missions. The expenses of the Health and Social Services mission show an average annual progression of 4.9% from 2006-2007 to 2015-2016, compared with 3.5% for total consolidated expenditure, such that the proportion of this mission's expenses in expenditures as a whole rose from 35.0% to 38.9%. This indicator reflects the growing importance of expenditures for the Health and Social Services mission. It also reflects the ever-growing needs entailed, among other things, by the aging of the population. This indicator shows that the proportion of expenditures devoted to the Education and Culture mission has remained fairly stable, going from 19.6% to 21.8%. Regarding the other mission expenditures, their share to total expenditure went from 32.5% in 2006-2007 to 29.0% in 2015-2016. The share of total spending devoted to Debt service fell from 12.9% in 2006-2007 to 10.4% in 2015-2016. During that period, the average annual growth in Debt service was 1.3%. 47
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 7. Results of the indicator analysis (cont'd) Indicator 4: Gross debt to GDP This indicator puts the Government's gross debt and its ability to pay into perspective, as measured by GDP. It is desirable that this ratio follow a downward trend as this reflects a decline in the relative weight of the gross debt. Gross debt (as a percentage of GDP) 60.0 58.0 56.0 54.0 52.0 50.0 49.7 Consolidated networks at modified equity value 48.8 48.5 51.9 52.9 53.2 Line-by -line consolidated networks (1) 54.8 54.2 55.1 53.8 48.0 46.0 44.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 (1) The value of the gross debt as at March 31, 2014 was increased by $709 M to reflect the taking over by Financement-Québec of loans belonging to the Financing Fund made to entities not included in the Government's reporting entity. The ratio of gross debt to GDP improved from 49.7% to 48.5% from 2006-2007 to 2008-2009. In 2009-2010, it stood at 51.9% on the basis of the line-by-line consolidation of the health and social services and education networks. In 2015-2016 it amounted to 53.8%, which represents a decrease compared with 2014-2015. 48
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 7. Results of the indicator analysis (cont'd) Indicator 5: Debt representing accumulated deficits to GDP This indicator compares the debt representing accumulated deficits, or the debt not used to finance assets, with the Government's ability to pay, as measured by GDP. It is desirable that this ratio follow a downward trend as this means that the relative weight of the debt representing accumulated deficits is on the decline. Debt representing accumulated deficits (as a percentage of GDP) 46.0 44.0 42.0 40.0 38.0 Consolidated networks at modified equity value Line-by -line consolidated networks 36.0 34.0 33.1 32.8 34.7 34.1 33.4 34.6 33.8 32.8 32.0 31.0 31.2 30.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Note: Before taking into account the stabilization reserve. In 2006-2007, the ratio of the debt representing accumulated deficits to GDP stood at 33.1%. Since 2009-2010, the ratio of the debt representing accumulated deficits to GDP decreased from 34.7% to 31.2%. 49
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 7. Results of the indicator analysis (cont'd) Indicator 6: Consolidated expenditure to GDP This indicator makes it possible to compare, over time, the growth rate of government spending with that of the economy. A decline in this indicator means that spending is growing less rapidly than the economy and makes it possible to assess the relative weight of the cost of public services in the economy. Expenditures (excluding debt service) (as a percentage of GDP) 26.0 25.0 24.0 23.0 Consolidated networks at modified equity value 23.4 23.3 22.8 22.7 23.3 23.1 22.9 22.0 21.0 20.3 20.5 21.1 Line-by -line consolidated networks 20.0 19.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Expenditures excluding debt service as a percentage of GDP increased slightly between 2006-2007 and 2007-2008, going from 20.3% to 20.5%. In 2008-2009, the ratio rose to 21.1% because, particularly, of weak growth in GDP. Since fiscal 2009-2010, following the line-by-line consolidation of organizations in the health and social services and education networks, consolidated expenditure has incorporated the networks' expenditures as a whole, which largely explains why the ratio rose to 23.4%. The Government kept spending growth above GDP in order to continue supporting the economy and maintain public services during the recession. Spending grew at a rate below that of GDP from 2010-2011 to 2012-2013, with the result that its relative weight in the economy fell, going from 23.3% to 22.7%. In 2013-2014, the rate rose to 23.3%, particularly because growth in spending outstripped that of GDP. In 2015-2016, the rate decreased to 22.9% due to an increase of 1.1% in spending, while GDP was up 2.0%. 50
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 7. Results of the indicator analysis (cont'd) Indicator 7: Debt service to total revenue This indicator illustrates the share of government revenue that must be allocated to debt service. It is desirable that this ratio follow a downward trend since this means that a larger share of revenue can be devoted to program spending. Debt service (as a percentage of total revenue) 20.0 18.0 16.0 Consolidated networks at modified equity value Line-by -line consolidated networks 14.0 12.0 10.0 8.0 12.5 12.0 11.1 10.8 11.0 11.2 11.4 10.7 10.0 10.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Overall, the proportion of budgetary revenue devoted to debt service has fallen since 2006-2007. In 2006-2007, the debt service to total revenue ratio was 12.5%. In 2009-2010, it stood at 10.0%, taking into account the line-by-line consolidation of organizations in the health and social services and education networks. In 2015-2016, it stood at 10.0%, which represents a decrease compared with 2014-2015. 51
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 7. Results of the indicator analysis (cont'd) Indicator 8: Net book value of fixed assets to the cost of fixed assets This indicator shows the extent to which the estimated remaining useful life of tangible assets will enable the Government to supply products and services in the future. Net book value of fixed assets (as a percentage of the cost of fixed assets) 60.0 55.0 52.3 51.9 54.7 53.6 55.1 56.1 57.0 57.3 57.1 57.2 50.0 45.0 Consolidated networks at modified equity value Line-by -line consolidated networks 40.0 35.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 The net book value to the cost of fixed assets indicator has risen significantly over the past 10 years, from 52.3% as at March 31, 2007 to 57.2% as at March 31, 2016. This shows that annual investments in fixed assets have outstripped the annual depreciation of the Government's fixed assets as a whole. The average age and the remaining useful life of fixed assets are thus better today than they were a few years ago. 52
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 7. Results of the indicator analysis (cont'd) Indicator 9: Own-source revenue to GDP This indicator shows the proportion of collective wealth that the Government must collect in order to fund public services. The Government's own-source revenue consists of income tax and other taxes, user fees and other revenue derived from its enterprises in particular. This revenue includes all of the Government's revenue, apart from transfers received from the federal government. A decline in this ratio over time tends to indicate that more created wealth is directly available to taxpayers. Own-source revenue (as a percentage of GDP) 24.0 23.0 22.0 Consolidated networks at modified equity value Line-by -line consolidated networks 21.0 20.0 19.0 18.0 19.8 19.1 18.4 19.6 19.9 20.1 19.9 (1) 20.7 20.9 21.5 17.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 (1) The decline of the ratio in 2012-2013 is due mainly to the recording of the loss of $1 876 M arising from discontinued operations following the closure of the Hydro-Québec's Gentilly-2 nuclear generating station, which reduced revenue accordingly. Excluding this loss, the ratio amounts to 20.4%. The ratio of own-source revenue to GDP decreased from 2006-2007 to 2008-2009, going from 19.8% to 18.4%, notably because of the impact of the recession on the Government's revenue. The ratio rose to 19.6% in 2009-2010, owing to the increase in own-source revenue caused by the line-by-line consolidation of organizations in the health and social services and education networks. It rose to 20.1% in 2011-2012 due to the increase in revenue required to restore fiscal balance. The loss arising from discontinued operations following the closure of the Gentilly-2 nuclear generating station reduced the ratio to 19.9% in 2012-2013. It subsequently rose to 20.7% in 2013-2014 and settled at 21.5% in 2015-2016. 53
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 7. Results of the indicator analysis (cont'd) Indicator 10: Transfers from the federal government to total revenue Transfers received from the federal government comprise equalization payments, payments from transfers for health care and for post-secondary education and other social programs, and amounts transferred by the federal government under various agreements. This indicator measures the portion of the Québec government's revenue that comes from the federal government. Federal government transfers (as a percentage of total revenue) 25.0 23.0 21.0 19.0 17.0 17.2 20.1 Consolidated networks at modified equity value 20.6 21.8 21.1 19.8 19.9 19.9 Line-by -line consolidated networks 19.3 18.9 15.0 13.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 From 2006-2007 to 2007-2008, the proportion of federal government transfers in total revenue rose from 17.2% to 20.1%, owing notably to a thorough reform of the equalization program. The proportion reached 21.8% in 2009-2010 particularly because of the incorporation of organizations in the health and social services and education networks and the increase in funds transferred by the federal government under various agreements. In 2011-2012, the proportion decreased to 19.8% mainly due to a decline in equalization revenue stemming from Québec's relatively good economic performance. In 2012-2013 and 2013-2014, the proportion of federal government transfers in total revenue stood at 19.9%. It fell slightly in 2014-2015, to 19.3%, due to the end of payments of compensation for harmonization of the QST with the GST. It stood at 18.9% in 2015-2016. 54
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 7. Results of the indicator analysis (cont'd) Indicator 11: Debt in foreign currency to gross debt This indicator illustrates the degree to which the Government's debt service may be affected by fluctuations in the Canadian dollar. A downward trend in the proportion of debt in foreign currency means that the vulnerability of debt service is on the decline. Debt in foreign currency (as a percentage of gross debt) 15.0 12.0 9.0 6.0 3.0-5.8 Consolidated networks at modified equity value 7.0 6.7 3.3 Line-by -line consolidated networks 0.5 0.2 0.0 0.0 0.0 0.0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 (3.0) Note: Gross debt including advance borrowings. From 2006-2007 to 2008-2009, the proportion of the debt in foreign currency rose from 5.8% to 6.7%. The proportion has decreased since 2009-2010, from 3.3% to 0.2%. The proportion has been zero since 2012-2013, with the result that debt service is no longer vulnerable to fluctuations in the Canadian dollar relative to the currencies in which the Government holds part of its debt. 55
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Financial statistics APPENDIX 1 These tables present the historical data for certain consolidated financial statement items over the past years: these data correspond to those determined at the time of their original publication. However, a number of adjustments or reclassifications have been made to Revenue and Expenditure in order to present them according to the budgetary structure in effect for 2015-2016 and render them comparable with the historical data presented in the most recent budget plan. Historical data for consolidated financial statement items FISCAL YEAR ENDED MARCH 31 (in millions of dollars) Fiscal year Revenue Expenditure (Deficit) surplus (1) Financial Non-Financial assets Liabilities Net debt (2) assets (3) Accumulated deficit (4) 2015-2016 100 123 96 479 3 644 70 767 (255 792) (185 025) 67 095 (117 930) 2014-2015 95 937 95 801 136 70 178 (255 758) (185 580) 64 419 (121 161) 2013-2014 93 231 94 934 (1 703) 62 701 (243 962) (181 261) 61 372 (119 889) 2012-2013 87 997 90 512 (2 515) 62 015 (237 502) (175 487) 57 392 (118 095) 2011-2012 86 410 88 198 (1 788) 60 060 (227 171) (167 111) 52 989 (114 122) 2010-2011 82 863 85 253 (2 390) 56 345 (215 634) (159 289) 47 387 (111 902) 2009-2010 78 604 81 544 (2 940) 49 235 (199 335) (150 100) 42 483 (107 617) Before the line-by-line consolidation of network organizations (5) 2008-2009 73 227 74 485 (1 258) 53 532 (182 325) (128 793) 30 767 (98 026) 2007-2008 73 126 71 476 1 650 49 016 (173 334) (124 318) 30 147 (94 171) 2006-2007 69 609 67 616 1 993 47 732 (169 923) (122 191) 26 432 (95 759) Before the reform of government accounting (6) 2005-2006 63 763 63 726 37 40 355 (145 038) (104 683) 12 984 (91 699) 2004-2005 60 204 60 868 (664) 39 258 (138 300) (99 042) 11 818 (87 224) 2003-2004 57 548 57 906 (358) 35 962 (132 987) (97 025) 10 735 (86 290) 2002-2003 55 124 55 852 (728) 37 071 (132 528) (95 457) 9 716 (85 741) 2001-2002 52 560 53 488 (928) 34 332 (126 593) (92 261) 8 161 (84 100) 2000-2001 53 075 51 698 1 377 38 620 (126 828) (88 208) 7 166 (81 042) 1999-2000 49 332 49 325 7 35 284 (124 170) (88 886) 6 693 (82 193) 1998-1999 48 617 48 491 126 34 898 (123 359) (88 461) 6 233 (82 228) 1997-1998 44 097 46 254 (2 157) 27 016 (115 420) (88 404) 5 980 (82 424) (1) The budget balance within the meaning of the Balanced Budget Act is presented in Table 1.3 of this appendix (p. 61). (2) The net debt represents liabilities minus the financial assets presented in the consolidated statement of financial position. (3) Table 1.1 of this appendix (p. 57) presents the breakdown of the annual change in non-financial assets. (4) Table 1.2 of this appendix (p. 58 to 60) presents the breakdown of the annual change in accumulated deficits attributable to the comprehensive income of government enterprises and to accounting changes. (5) Judgment must be exercised in comparing the data for 2009-2010 and thereafter with those for prior years because of the impact of the line-by-line consolidation of organizations in the health and social services and education networks. (6) Judgment must be exercised in comparing the data for 2006-2007 and thereafter with those for prior years because of the impact of the December 2007 accounting reform. 56
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 Financial statistics (cont'd) APPENDIX 1 Table 1.1 Breakdown of the annual change in non-financial assets FISCAL YEAR ENDED MARCH 31 (in millions of dollars) Fiscal Year Net book value of fixed assets Current year change Inventories and prepaid expenses Net investment in the networks Adjustments of the balance of non-financial assets (1) Net book value of fixed assets Inventories and prepaid expenses Net investment in the networks 2015-2016 2 695 (19) 2 676 2014-2015 2 980 34 33 3 047 2013-2014 3 977 3 3 980 2012-2013 4 863 49 (279) (2) (230) (3) 4 403 2011-2012 5 350 252 5 602 2010-2011 4 923 (19) 4 904 2009-2010 4 226 83 16 112 (4),(5) 334 2008-2009 2 297 46 622 (290) 2007-2008 1 457 30 487 1 639 2006-2007 1 219 10 1 002 2 184 (6) (8) (9) (5) (9 039) (2 055) 102 Total change for fiscal year (5) 11 716 (7) 620 (8) 3 715 152 (10) 8 881 (11) 13 448 2005-2006 1 166 1 166 2004-2005 1 083 1 083 2003-2004 1 019 1 019 2002-2003 1 482 73 (12) 1 555 2001-2002 995 995 2000-2001 473 473 1999-2000 359 101 (13) 460 1998-1999 217 36 (14) 253 1997-1998 199 5 781 (15) 5 980 (1) The opening balance for non-financial assets was changed due to accounting changes and data reclassifications. (2) The change in the transfer revenue accounting policy led to a $249-million downward adjustment in Fixed assets. (3) The decrease stems from the change to the transfer spending accounting policy, which resulted in certain prepaid expenses being charged to expenditure. (4) The increase stems from the adoption of a component-based approach for capitalizing and amortizing the cost of road infrastructure fixed assets. (5) The incorporation of organizations in the health and social services and education networks using the line-by-line consolidation method instead of the modified equity method increased Fixed assets by $15 642 M and Inventories and Prepaid expenses by $420 M. In addition, the net investment in the networks was eliminated because of the line-by-line consolidation of these organizations. (6) The decrease stems from the harmonization of the accounting policies of Immobilière SHQ with those of the Government, in regard to the amortization of the cost of fixed assets in results. (7) The decrease stems from the harmonization of the accounting policies used by organizations in the health and social services network and by school boards with those of the Government, particularly in regard to the recording of fixed assets and the full application of accrual accounting to the revenue and expenditure of these organizations. (8) The increase stems from the line-by-line consolidation of Immobilière SHQ, following the change in its status as an enterprise. (9) The increase stems from the line-by-line consolidation of certain bodies ($2 240 M), following the change in their status as an enterprise. The increase is reduced by a $56 M rise in the accumulated amortization of the Agence métropolitaine de transport following a review of its amortization policy. (10) The increase stems from the recording of the opening balance of inventories and prepaid expenses, as part of the 2006-2007 accounting reform. (11) The increase stems from the inclusion in the Government's reporting entity of organizations in the health and social services and education networks, as part of the 2006-2007 accounting reform. (12) The increase stems from the capitalization of the cost of improvements to the premises of the Société Immobilière du Québec ($57 M) and the line-by-line consolidation of a body ($16 M), following the change in its status as an enterprise. (13) The increase stems from the revaluation of fixed assets recorded as part of the 1997-1998 accounting reform. (14) The increase stems from the capitalization of cadastral plan expenses. (15) The increase stems from the recording of the opening balance of fixed assets as part of the 1997-1998 accounting reform. 57
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Financial statistics (cont'd) APPENDIX 1 Table 1.2 Breakdown of the annual change in accumulated deficits attributable to the comprehensive income of enterprises and to accounting changes FISCAL YEAR ENDED MARCH 31 (in millions of dollars) Fiscal year Enterprises comprehensive income and other (1) Restatements of accumulated deficits Government enterprises Departments and bodies Total for other factors Restatement details 2015-2016 (306) (107) (413) Government enterprises: ($107 M) to finalize the adjustments made in 2014-2015 in order to comply with International Financial Reporting Standards (IFRS). 2014-2015 550 (2 252) 294 (1 408) Departments and bodies: $294 M for the adjustment to revenue for previous years, in respect of the sale tax, collected by Canada Revenue Agency from selected listed financial institutions; Government enterprises: ($2 252 M) in order to comply with International Financial Reporting Standards (IFRS). 2013-2014 (80) (11) (91) Government enterprises: ($11 M) in order to comply with International Financial Reporting Standards (IFRS) IAS 19 Employee Benefits. 2012-2013 (360) (1 098) (1 458) Departments and bodies: ($988 M) for the accounting policy change made to take into account the recommendations of the revised accounting standard on government transfers (PS 3410) of the Public Sector Accounting Board (PSAB); ($110 M) to take into account the improvements to the method used to calculate tax revenue allowances. 2011-2012 (376) (56) (432) Government enterprises: ($56 M) in order to comply with International Financial Reporting Standards (IFRS). 2010-2011 (229) (253) (1 413) (1 895) Government enterprises: ($95 M) for obligations related to the decommissioning of fixed assets, ($158 M) for complying with International Financial Reporting Standards (IFRS). Departments and bodies: ($1 413 M) for contaminated land remediation obligations recorded as environmental liabilities. 2009-2010 (452) (3 749) (2 450) (6 651) Government enterprises: ($3 758 M) for adopting the straight-line method for tangible fixed assets to replace a method not recognized by International Financial Reporting Standards (IFRS); $9 M for various items. Departments and bodies: ($1 234 M) for harmonizing the accounting policies of organizations in the health and social services and education networks with those of the Government to make it easier to incorporate these organizations into the Government's consolidated financial statements using the line-by-line consolidation method; $431 M for adopting a component-based approach for capitalizing and amortizing the cost of road infrastructure fixed assets; ($683 M) for contaminated land remediation obligations recorded as environmental liabilities; ($1 129 M) for changing the valuation basis for calculating interest on the pension plans; and $165 M for changing the method used to record personal income tax collected by the federal government on behalf of Québec. 2008-2009 111 (2 708) (2 597) Departments and bodies: ($2 055 M) for harmonizing the accounting policies of organizations in the health and social services and education networks with those of the Government; ($290 M) for harmonizing the accounting policies of Immobilière SHQ with those of the Government in regard to the recognition of the cost of its fixed assets under results; ($193 M) for the change in the amortization period for the actuarial gains and losses of certain pension plans; and ($170 M) for contaminated land remediation obligations recorded as environmental liabilities. 2007-2008 303 (20) (345) (62) Government enterprises: ($28 M) for the change to the accounting policy for recording financial instruments; $8 M for a change concerning employee future benefits. Departments and bodies: ($345 M) for contaminated land remediation obligations recorded as environmental liabilities. (1) Since fiscal 2006-2007, these data have corresponded to the comprehensive income of government enterprises. For 2001-2002 to 2005-2006, they corresponded to the foreign exchange translation adjustment, and for 1997-1998 to 1999-2000, to the surplus of the municipal assessment for fixed assets of the Corporation d'hébergement du Québec. 58
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 Financial statistics (cont'd) APPENDIX 1 Table 1.2 Breakdown of the annual change in accumulated deficits attributable to the comprehensive income of enterprises and to accounting changes (cont'd) FISCAL YEAR ENDED MARCH 31 (in millions of dollars) Fiscal year Enterprises comprehensive income and other (1) Restatements of accumulated deficits Government enterprises Departments and bodies Total for other factors Restatement details 2006-2007 11 830 (6 894) (6 053) Government enterprises: $830 M for the change to the accounting policy for recording financial instruments. Departments and bodies: ($6 426 M) for the accounting reform, i.e. ($3 220 M) for including in the Government's reporting entity the vast majority of organizations in the health and social services and education networks; ($1 904 M) for recording revenue from income and property taxes, consumption taxes and duties and permits using the accrual method; ($484 M) for reevaluating the time when transfer expenditures should be recognized; ($335 M) for recognizing the grant portion arising from significant concessionary terms awarded for investments and loans granted; ($125 M) for the change to the policies for recording the Retirement Plans Sinking Fund; ($708 M) for applying the standards for financial instruments; $152 M for the change to the accounting policy for recording inventories and prepaid expenses; $198 M for the other components of the reform; and ($468 M) for the change to the accounting policy for contaminated land remediation obligations recorded as environmental liabilities. 2005-2006 24 (25) (4 511) (4 512) Government enterprises: ($25 M) for various items. Departments and bodies: ($3 384 M) for the change to the accounting policy for revenue from federal government transfers; ($270 M) for the change in the application of the accounting policy for the allowance for losses on guaranteed financial initiatives; ($264 M) for the new actuarial valuations of the pension plans; ($552 M) for the change in the recording of revenue from registration fees; and ($41 M) for harmonizing the accounting policies of consolidated organizations. 2004-2005 3 (273) (270) Departments and bodies: ($126 M) for the reassessment of school board subsidies and ($147 M) for the correction to the allowance for doubtful accounts. 2003-2004 (40) (4) (147) (191) Government enterprises: ($4 M) for various items. Departments and bodies: ($96 M) for the change to one of the terms of application of the accounting policy for debts and ($51 M) for the adjustment to the accounts receivable of a consolidated body. 2002-2003 (122) (421) (370) (913) Government enterprises: ($363 M) relating to the capping mechanism used in calculating deferred gains and losses on the basis of the real rate of return assumption at the Société d assurance automobile du Québec and ($58 M) for other items. Departments and bodies: ($215 M) for correcting the error made by the Canada Customs and Revenue Agency; ($177 M) for recording employer contributions in respect of obligations relating to sick leave and vacations; ($14 M) for other items and $36 M for the change made in 2003-2004 to one of the terms of application of the accounting policy for debts. In this regard, expenditure for fiscal 2002-2003 was restated by $36 M. 2001-2002 88 (2 218) (2 130) Government enterprises: ($1 306 M) for foreign currency translation and ($912 M) for the introduction of a provision for deviations in the real rate of return. (1) Since fiscal 2006-2007, these data have corresponded to the comprehensive income of government enterprises. For 2001-2002 to 2005-2006, they corresponded to the foreign exchange translation adjustment, and for 1997-1998 to 1999-2000, to the surplus of the municipal assessment for fixed assets of the Corporation d hébergement du Québec. 59
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Financial statistics (cont'd) APPENDIX 1 Table 1.2 Breakdown of the annual change in accumulated deficits attributable to the comprehensive income of enterprises and to accounting changes (cont'd) FISCAL YEAR ENDED MARCH 31 (in millions of dollars) Fiscal year Enterprises comprehensive income and other (1) Restatements of accumulated deficits Government enterprises Departments and bodies Total for other factors Restatement details 2000-2001 (173) (53) (226) Government enterprises: ($235 M) following the adoption of Canadian accounting standards and $62 M for the change to the accounting policies for certain allowances and the actuarial liability. Departments and bodies: ($12 M) for sick leave and vacations and ($41 M) for the change to the accounting policy for recording certain building repair and upgrading expenditures. 1999-2000 26 16 (14) 28 Government enterprises: $16 M following the adoption of Canadian accounting standards by the Corporation d hébergement du Québec in 2000-2001. In this regard, revenue for 1999-2000 was restated by the same amount. Departments and bodies: $101 M for the reassessment of fixed assets following the 1997-1998 accounting reform and ($122 M) for other items and $7 M for the change made in 2000-2001 to the accounting policy concerning the recording of certain expenditures for the upgrading and repair of immovables. In this regard, expenditures for 1999-2000 was restated by $7 M. 1998-1999 7 63 70 Departments and bodies: $27 M for the accounting change in the recording of foreign exchange forward contracts and $36 M for capitalizing cadastral plan expenses. 1997-1998 24 (15 421) (15 397) Departments and bodies: ($13 173 M) for recording unrecorded pension plan obligations; ($6 693 M) for consolidating government enterprises, bodies and special funds; ($731 M) for the change to the method used to record borrowings; ($461 M) for recording public sector restructuring measures; and $5 637 M for recording fixed assets. (1) Since fiscal 2006-2007, these data have corresponded to the comprehensive income of government enterprises. For 2001-2002 to 2005-2006, they corresponded to the foreign exchange translation adjustment, and for 1997-1998 to 1999-2000, to the surplus of the municipal assessment for fixed assets of the Corporation d hébergement du Québec. 60
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 Financial statistics (cont'd) APPENDIX 1 Table 1.3 Budget balance within the meaning of the Balanced Budget Act FISCAL YEAR ENDED MARCH 31 (in millions of dollars) Fiscal Year (Deficit) surplus Generations Fund Sub-total Accounting changes and other Budget balance (1) Use of (allocation to) the reserve Budget balance after reserve (2) 2015-2016 3 644 (1 453) 2 191 2 191 (2 191) - 2014-2015 136 (1 279) (1 143) 418 (3) (725) (725) 2013-2014 (1 703) (1 121) (2 824) (2 824) (2 824) 2012-2013 (2 515) (961) (3 476) 1 876 (4) (1 600) (1 600) 2011-2012 (1 788) (840) (2 628) (2 628) (2 628) 2010-2011 (2 390) (760) (3 150) (3 150) (3 150) 2009-2010 (2 940) (725) (3 665) 58 (3) (3 607) 433 (3 174) 2008-2009 (1 258) (587) (1 845) (1 845) 1 845-2007-2008 1 650 (449) 1 201 1 201 (1 201) - 2006-2007 1 993 (584) 1 409 1 409 (1 300) 109 (1) The budget balance is established in accordance with section 2 of the Balanced Budget Act, as in force since September 21, 2009. The provisions of this section have been in effect since April 1, 2006. (2) The budget balance after reserve shows the achievement of a balanced budget in accordance with section 6 of the Act, which stipulates that the Government may not incur a budgetary deficit. This section does not apply to the years 2009-2010 to 2014-2015. (3) The Act stipulates that the budget balance must: a) not include the impact of the application of a new Canadian Institute of Chartered Accountants standard during a period prior to the changeover date proposed by the Institute; b) take into account the impact of the accounting changes, related to a period after March 31, 2006, charged directly to accumulated deficits. This rule does not apply to accounting changes resulting from the implementation of the 2006-2007 accounting reform. (4) The Act provides for the exclusion, in the calculation of the budget balance for fiscal 2012-2013, of the result arising from discontinued operations following the decision to close the Gentilly-2 nuclear generating station, presented in Hydro-Québec's annual consolidated financial statements. 61
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Financial statistics (cont'd) APPENDIX 1 Table 1.4 Stabilization reserve FISCAL YEAR ENDED MARCH 31 (in millions of dollars) Fiscal Year Opening balance Amounts allocated to the reserve Amounts used to maintain a balanced budget Deposits in the Generations Fund Closing balance 2015-2016 - 2 191 - - 2 191 2014-2015 - - - - - 2013-2014 - - - - - 2012-2013 - - - - - 2011-2012 - - - - - 2010-2011 - - - - - 2009-2010 433 - (433) - - 2008-2009 2 410 - (1 845) (132) 433 2007-2008 1 409 1 201 - (200) 2 410 2006-2007 (1) - 1 409 - - 1 409 (1) Under the Act to amend the Balanced Budget Act and various legislative provisions concerning the implementation of the accounting reform (S.Q., 2009, chapter 38), adopted in September 2009, the Government established a stabilization reserve to facilitate its multi-year planning and the subsidiary deposit of sums into the Generations Fund. The provisions of the Act pertaining to this reserve have been in effect since April 1, 2006. This Act repealed the Act to establish a budgetary surplus reserve fund. Accordingly, the transactions of the budgetary reserve carried out between April 1, 2006 and the adoption of the Act became those of the stabilization reserve. In addition, the $109-million balance of the recorded surplus for fiscal 2006-2007 that had not been allocated to the budgetary reserve was allocated to the stabilization reserve in accordance with the Act. 62
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 Information by reporting sector AS AT MARCH 31, 2016 APPENDIX 2 Consolidated operations include financial information from numerous departments, bodies, funds and government enterprises. The Government's financial framework presents consolidated financial forecasts for the revenue and expenditure of all of these entities, grouped by sector according to their control and accountability relationship with the Government. Criteria such as ministerial accountability, legal framework, scope of authority delegated to management, funding method, degree of autonomy and nature of activities are used to classify the entities in the different sectors. The following tables report on the operations of each of the sectors identified in the Government's financial framework. Since it was possible to associate all revenue and expenditure items with a specific sector, it was not necessary to use allocation methods to allocate some of the items among two or more specific sectors. 63
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Information by reporting sector (cont'd) AS AT MARCH 31, 2016 APPENDIX 2 Consolidated statement of operations by sector (in millions of dollars) Consolidated Revenue Fund (1) General Fund (2) Tax-funded transfers (3) Government enterprises (4) Special funds (5) Specified purpose accounts (6) REVENUE Income and property taxes 33 033 0 6 560 0 0 0 2 062 0 0 0 Consumption taxes 17 768 0 288 0 0 0 2 402 0 0 0 Duties and permits 320 0 0 0 0 0 2 222 0 0 0 Miscellaneous revenue 1 365 0 0 0 0 0 1 799 0 236 0 Other revenue sources 0 0 0 0 5 013 0 0 0 0 0 Dividends paid by enterprises 4 531 0 0 0 (4 629) 0 0 0 0 0 Total own-source revenue 57 017 0 6 848 0 384 0 8 485 0 236 0 Québec government transfers 0 0 0 0 0 0 4 471 0 0 0 Federal government transfers 17 035 0 0 0 0 0 445 0 748 0 Total revenue 74 052 0 6 848 0 384 0 13 401 0 984 0 EXPENDITURE 0 0 0 0 0 0 0 0 0 0 Health and Social Services 32 744 0 577 0 0 0 1 717 0 182 0 Education and Culture 17 427 0 409 0 0 0 105 0 89 0 Economy and Environment 4 966 0 1 730 0 0 0 5 038 0 662 0 Support for Individuals and Families 6 337 0 3 204 0 0 0 2 730 0 4 0 Administration and Justice 4 157 0 928 0 0 0 1 564 0 47 0 Sub-total 65 631 0 6 848 0 0 11 154 0 984 0 Debt service 7 955 0 0 0 0 0 1 378 0 0 0 Total expenditure 73 586 0 6 848 0 0 12 532 0 984 0 ANNUAL SURPLUS (DEFICIT) 466 384 869 64
A NALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 APPENDIX 2 Generations Fund (7) Non-budget funded bodies (8) Organizations in the health and social services network (9) Organizations in the education networks (9) Consolidation adjustments (10) Consolidated results 0 0 0 56 0 0 0 2 098 0 664 0 44 473 0 100 0 70 0 0 0 0 0 (2 111) 0 18 517 0 902 0 384 0 0 0 0 0 0 0 3 828 0 353 0 5 687 0 2 358 0 1 660 0 (4 067) 0 9 391 0 0 0 0 0 0 0 0 0 0 5 013 0 98 0 0 0 0 0 0 0 0 0 0 1 453 0 6 197 0 2 358 0 3 758 0 (5 514) 0 81 222 0 0 0 13 037 0 21 179 0 11 764 0 (50 451) 0 0 0 0 952 0 131 0 187 0 (597) (11) 18 901 0 1 453 0 20 186 0 23 668 0 15 709 0 (56 562) 0 100 123 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 373 0 23 364 0 0 0 (33 456) 0 37 501 0 0 0 497 0 0 0 15 147 0 (12 677) 0 20 997 0 0 0 3 204 0 0 0 0 0 (3 903) 0 11 697 0 0 0 187 0 0 0 0 0 (2 873) 0 9 589 0 0 0 2 625 0 0 0 0 0 (2 635) 0 6 686 0 0 18 886 0 23 364 0 15 147 0 (55 544) 0 86 470 0 0 0 818 0 407 0 399 0 (948) 0 10 009 0 0 19 704 0 23 771 0 15 546 0 (56 492) 0 96 479 1 453 482 (103) 163 (70) 3 644 65
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Information by reporting sector (cont'd) AS AT MARCH 31, 2016 APPENDIX 2 (1) The Consolidated Revenue Fund consists of money collected or received from various sources over which the Parliament of Québec has the power of appropriation. The fund comprises a general fund and special funds. (2) The general fund consists of money paid into the Consolidated Revenue Fund that has not been credited to a special fund under legislative provisions, as well as the expenditures of the National Assembly, persons appointed by it, departments and bodies administered by a minister whose budget is financed by appropriations allocated by the National Assembly. As stipulated in the Act respecting the Agence du revenu du Québec (CQLR, chapter A-7.003), tax revenue administered by the Agence du revenu du Québec on behalf of the Government is reduced by the related allowances for doubtful accounts. In addition, income and property tax revenue is reduced by the refundable tax credits provided for in the Taxation Act (CQLR, chapter I-3); since, within the meaning of the Act, these credits are payments on account of tax payable or, overpayments of tax payable. This sector also includes the activities of the Health Services Fund. (3) Tax revenue used to finance doubtful accounts related to this revenue and transfer expenditures made through the tax system are not subject to the allocation of appropriations by the National Assembly and are the focus of a specific reporting sector. A transfer expenditure made through the tax system is a refundable tax credit that provides a taxpayer with a financial benefit for a purpose other than that of reducing the taxes that the taxpayer would otherwise have been required to pay to the Government. (4) Government enterprises are distinct legal entities that have the power to carry out commercial activities. The sale of their goods or delivery of their services target individuals or organizations not included in the Government's reporting entity. Therefore, these enterprises are financially autonomous in that their revenue from outside the reporting entity ensures that they carry out their activities and repay their debts on their own. Since their accounts are accounted for using the modified equity method, only their net surpluses for the fiscal year are presented in the table, after deducting the dividends paid into the general fund. (5) A special fund is a fund established by an Act to provide for certain financial commitments of a minister, a budget-funded body or a non-budget-funded body exercising an adjudicative function. Legislative provisions determine which sums paid into the Consolidated Revenue Fund must be credited to a special fund. The results of the special funds do not include the activities of the Health Services Fund and the Generations Fund. (6) A specified purpose account is a financial management mechanism created by a Government order in council under legislative provisions. It allows a department to account in a distinct way for funds paid into the Consolidated Revenue Fund by a third party under a contract or an agreement that provides for the allocation of the funds to a specific purpose. (7) The Generations Fund, created under the Act to reduce the debt and establish the Generations Fund (CQLR, chapter R-2.2.0.1), differs from other funds in that it is dedicated exclusively to repaying the Government's debt. (8) Non-budget-funded bodies depend in whole or in part on departments for their funding. However, non-budget-funded bodies have more autonomy than those funded by budgetary appropriations. Although non-budget-funded bodies also answer to a minister, the legislation grants their management more extensive funding and operating powers. (9) The health and social services network includes integrated health and social services centres and other public institutions (hospital centres, health and social services centres, rehabilitation centres, child and youth protection centres). The education networks are made up of the school board network, the general and vocational college (CEGEP) network and the Université du Québec and its constituent universities network. All of these organizations, which are funded largely through budgetary appropriations, are autonomous in regard to the delivery of public services. They are legal entities that are vested with the financial and administrative powers needed to provide public services, and they have a board of directors made up of elected or appointed local representatives from the area or sector served by each organization. In addition, the Government's ability to dispose of their assets is subject to major restrictions. (10) Consolidation adjustments stem mainly from the elimination of transactions and balances between entities in the different sectors. Therefore, the revenues and expenses of each sector are presented prior to the elimination of these items. However, transactions and balances between entities within the same sector are eliminated before the segment amounts are determined. (11) The Québec government receives federal government transfer revenue whose received assets must be used for the purposes prescribed by the federal government in accordance with contracts or agreements entered into between the two parties. These funds are collected by the general fund and accounted for in specified purpose accounts. The sums are then paid to recipients when the latter become eligible. Consolidation adjustments are made to eliminate the federal transfer revenue related to the sums paid by the general fund to bodies included in the government's reporting entity. 66
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Glossary APPENDIX 3 The following terms are used in the sections Analysis of the consolidated financial statements and Consolidated financial statements contained in this volume. Accrual basis of accounting The accrual basis of accounting is an accounting method that involves taking into account, in determining an entity's net results, the revenues the entity earned and the expenditures it incurred during a fiscal year without considering the moment the transactions were settled through cash receipts or disbursements or in any other manner. Advance borrowings Advance borrowings are borrowings made by the general fund of the Consolidated Revenue Fund in a fiscal year to meet its financial requirements in the next fiscal year. Budget balance The budget balance and its calculation method are defined in the Balanced Budget Act (CQLR, chapter E-12.00001). The budget balance measures the attainment of a balanced budget. For a given fiscal year, it is the result of the difference between the revenue and expenditure determined in accordance with the Government's accounting policies and taking into account the following adjustments: Items not included in the budget balance: i) the revenue and expenditure recorded in the Generations Fund; ii) certain retroactive adjustments to revenue from government enterprises; iii) for fiscal 2012-2013, the result arising from discontinued operations following the decision to close the Gentilly-2 nuclear generating station, presented in Hydro-Québec's annual consolidated financial statements. Items included in the budget balance: i) entries charged directly to the accumulated deficit, except for those resulting from: (1) the retroactive effect of any new Canadian Institute of Chartered Accountants standard 1 for the years preceding the changeover year proposed by the Institute, (2) accounting changes resulting from the 2006-2007 accounting reform appearing in the public accounts. 1 The standards of the Canadian Institute of Chartered Accountants have been published by CPA Canada since November 1, 2013. 67
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Glossary (cont'd) APPENDIX 3 Consolidation methods Line-by-line consolidation method The accounts of the Consolidated Revenue Fund, which include the general fund and the special funds, and the accounts of the other entities included in the Government's reporting entity, with the exception of government enterprises, are consolidated line by line in the financial statements. Accordingly, the accounts are harmonized according to the Government's accounting policies and combined line by line; inter-entity transactions and balances are eliminated. Modified equity method Investment in government enterprises is accounted for using the modified equity method. According to this method, investments are accounted for at cost. The cost is adjusted annually by the Government's share in the results of these enterprises with an offsetting entry to revenue, and by its share in the other items of their comprehensive income with an offsetting entry to accumulated deficits. The value of the investment is reduced by declared dividends and adjusted by the elimination of unrealized inter-entity gains and losses relating to transactions on assets that remain within the Government's reporting entity. This method requires no harmonization of enterprises' accounting policies with those of the Government. Consolidated Revenue Fund The Consolidated Revenue Fund consists of all money received or collected from various sources over which the Parliament of Québec has the power of appropriation. The fund comprises a general fund and special funds. Debt representing accumulated deficits The debt representing accumulated deficits consists of the accumulated deficits presented in the Government's consolidated financial statements, plus the stabilization reserve balance established by the Balanced Budget Act (CQLR, chapter E-12.00001). Derivative instruments Derivative instruments are instruments whose value fluctuates depending on an underlying instrument, regardless of whether the underlying instrument is actually held or issued. Financial assets Financial assets are assets that can be used to repay existing debts or to finance future transactions. They are not intended to be used to deliver public services. 68
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Glossary (cont'd) APPENDIX 3 Financial instruments Financial instruments are liquid assets, equity securities in an entity or contracts that are both a source of financial assets for one of the two contracting parties and a source of financial liabilities or equity instruments for the other contracting party. General fund The general fund consists of money paid into the Consolidated Revenue Fund that has not been credited to a special fund under legislative provisions. Generations Fund Under the Act to reduce the debt and establish the Generations Fund (CQLR, chapter R-2.2.0.1), the Minister of Finance deposits the sums that make up this fund with the Caisse de dépôt et placement du Québec. These sums are used exclusively for repaying the Government's gross debt. Government accounting policies The Government's accounting policies define how it must record financial transactions in its books and adequately report them to the general public. They are adopted by the Conseil du trésor and derive from the Canadian public sector accounting standards. Gross debt The gross debt corresponds to the sum of debts before deferred foreign exchange gains or losses and the liability regarding the pension plans and other employee future benefits. The balance of the Generations Fund is subtracted from this amount. The gross debt for a fiscal year does not include borrowings contracted by the Minister of Finance for the following fiscal year, or the portion of advances made to the Financing Fund established under the Act respecting the Ministère des Finances (CQLR, chapter M-24.01) that is attributable to the funding of bodies not contemplated by the first paragraph of section 89 of the Financial Administration Act (CQLR, chapter A-6.001) and to the funding of the government enterprises listed in Schedule 3 of this Act. Gross domestic product (GDP) GDP is the value of all goods and services produced within the geographical limits of a country or a territory during a given calendar year. 69
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Glossary (cont'd) APPENDIX 3 Indicators Indicators are tools of measurement that make it possible to monitor and assess the attainment of an objective, the implementation of a strategy or the accomplishment of a task or an activity. Missions Missions are the basic activity areas of a government that constitute its raison d'être. In Québec, there are six missions: Health and Social Services, Education and Culture, Economy and Environment, Support for Individuals and Families, Administration and Justice, and Debt Service. Net debt The net debt corresponds to the difference between the Government's financial assets and its liabilities. It consists of accumulated deficits and non-financial assets. Net financial requirements Net financial requirements are net liquid assets required by the Government for operating, equity investment and fixed asset investment activities. Non-financial assets Non-financial assets are assets used during the normal course of the Government's activities to deliver public services. Own-source revenue Own-source revenue consists of revenue from income and property taxes, consumption taxes, duties and permits, miscellaneous sources and government enterprises. Reporting entity The Government's reporting entity encompasses the financial transactions of the National Assembly, persons appointed by it, government departments and all of the bodies, funds and enterprises under the Government's control. Control is defined as the power to direct the financial and administrative policies of an entity such that its activities will provide the Government with anticipated benefits or expose it to the risk of loss. 70
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Glossary (cont'd) APPENDIX 3 Retirement Plans Sinking Fund (RPSF) Under the Financial Administration Act (CQLR, chapter A-6.001), the Minister of Finance may make long-term investments by depositing money from the general fund of the Consolidated Revenue Fund with the Caisse de dépôt et placement du Québec, up to an amount equal to the sums recorded as the pension plans liability, in order to create a sinking fund to provide for the payment of all or part of the benefits awarded under these plans. Sinking Fund relating to Government Borrowings Under the Financial Administration Act (CQLR, chapter A-6.001), the Minister of Finance may create a sinking fund to provide for the repayment of any borrowing that is part of the Government's public debt. To that end, the Minister may, with the authorization of the Government, take out of the general fund of the Consolidated Revenue Fund any sum the Minister pays into the sinking fund. In addition, prudential liquid assets are kept in the sinking fund to enable the Government to fulfill its financial commitments in the event of major disruptions in financial markets. Special fund A special fund is a fund established by an Act to provide for certain financial commitments of a minister, a budget-funded body or a non-budget-funded body exercising an adjudicative function. Legislative provisions determine which sums paid into the Consolidated Revenue Fund must be credited to a special fund. Supercategories Supercategories consist of the categories used to account for expenditures. There are five expenditures supercategories. Transfer This supercategory includes expenditures that are paid out to provide beneficiaries with various forms of financial support. For the Government, these expenditures do not constitute direct acquisitions of goods or services or funds granted for the purpose of obtaining a return, as in the case of an investment. 71
PUBLIC ACCOUNTS 2015-2016 VOLUME 1 Glossary (cont'd) APPENDIX 3 Remuneration This supercategory includes expenditures incurred for ordinary remuneration, overtime and certain other indemnities paid directly by the Government to permanent and part-time employees and to casual employees, including students and seasonal public sector employees. It also includes the remuneration of health professionals and benefits and other contributions paid by the Government in its capacity as an employer, particularly, contributions to the pension plans, the Québec Pension Plan, the Québec Parental Insurance Plan and employment insurance. Operating This supercategory includes expenditures incurred in the course of an entity's administrative activities, apart from remuneration expenses, transfer expenses, doubtful accounts and other allowances, and debt service. In particular, it includes the estimated cost of reassessments and of the Government's new obligations regarding the remediation of contaminated sites, as well as the depreciation of fixed assets. Doubtful accounts and other allowances This supercategory includes expenditures resulting from changes in the allowance for doubtful accounts, the allowance for losses on financial initiatives guaranteed by the Government and the valuation allowance for loans and portfolio investments. Debt service This supercategory includes interest on debts, minus the investment income of sinking funds for borrowings, and interest charges in respect of the pension plans and other employee future benefits. It also includes the amortization of premiums, discounts and costs related to the issue of borrowings and to debt management, as well as the amortization of foreign exchange gains and losses. 72
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 Statement of responsibility The Government is responsible for the integrity and objectivity of the consolidated financial statements. These statements are prepared by the Comptroller of Finance for the Minister of Finance in accordance with the provisions of section 86 of the Financial Administration Act (CQLR, chapter A-6.001) and the accounting policies disclosed in Note 1. The analysis of the consolidated financial statements contained in Volume 1 is prepared by the Ministère des Finances. To fulfil its accounting and financial reporting responsibilities, the Government maintains systems of financial management and internal control designed to provide reasonable assurance that transactions are duly authorized by Parliament and properly executed and recorded. The Comptroller of Finance takes care of government accounting and obtains all the information needed to meet its accounting requirements from government departments, bodies, enterprises and funds. The Government submits its consolidated financial statements for audit assurance to the Auditor General of Québec who, in its independent auditor's report to the National Assembly, states the nature and scope of its audit as well as its opinion. The consolidated financial statements as part of the Public Accounts are tabled annually in the National Assembly by the Minister of Finance. On behalf of the Gouvernement du Québec, Luc Monty Simon-Pierre Falardeau, CPA, CA Deputy Minister of Finance Comptroller of Finance Québec, October 19, 2016 75
CONSOLIDATED FINANCIAL STATEMENTS 2015-2016 Independent Auditor's Report To the National Assembly, Report on the Consolidated Financial Statements I have audited the accompanying consolidated financial statements of the Government of Québec, which comprise the consolidated statement of financial position as at March 31, 2016, the consolidated statements of operations, accumulated deficit, change in net debt and cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information included in the notes and the appendices. Government s Responsibility for the Consolidated Financial Statements The Minister of Finance is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian public sector accounting standards and for such internal control as the Minister of Finance determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility is to express an opinion on these consolidated financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Government, as well as evaluating the overall presentation of the consolidated financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified audit opinion. 77