Prudence Over Politics: Our Analysis of Quebec’s 2025 Fall Economic Statement

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Cautious planning around trade uncertainty and higher than expected economic growth has improved Quebec’s fiscal outlook for 2025–26. The deficit is now anticipated to be $9.9 billion in the current fiscal year, compared to the $11.4 billion projected in Budget 2025. When including deposits into its Generations Fund, this figure rises to $12.4 billion.

Despite a shallower deficit in the short term, deficits for the remainder of the forecast period are expected to be similar to those announced in March. The government still expects to reach a modest surplus of $300 million in budget year 2029–30.
With continued deficits over the next two years, the net debt to GDP ratio is on track to reach 41.3 per cent in 2027–28, up from an estimated 39.7 per cent this year. This ratio is then forecast to gradually decline as the province returns to surplus, reaching 39.3 per cent in 2029–30.
Revenue growth remains positive but trails the pace of expenditure growth in 2025–26. Revenues are projected to rise by 1.7 per cent, with spending increasing by 3.3 per cent. This will keep the deficit elevated over the next few years before spending growth tapers off.
The government’s medium-term outlook remains consistent with its fiscal plan, prioritizing prudent management over ambitious new spending. Expenditures are projected to grow by an average of 1.5 per cent annually from 2026 to 2029, while revenues are expected to grow more quickly, averaging 2.9 per cent per year over the same period.
The government is also maintaining a robust contingency reserve throughout the forecast period to manage fiscal uncertainties. The reserve is set at $2.0 billion in 2025–26 and 2026–27, and $1.5 billion annually from 2027–28 to 2029–30, providing the capacity to respond to economic shocks, unexpected expenditures, or trade-related disruptions.
Lower than expected growth during the second quarter of 2025 has downgraded the government’s economic assumptions. The fiscal update now projects real GDP to grow by 0.9 per cent in 2025 and 1.1 per cent in 2026.
These assumptions are reasonable but somewhat optimistic based on our own analysis. We forecast real GDP growth of 0.5 per cent in 2025 and 0.9 per cent in 2026, reflecting ongoing trade uncertainty. Further ahead, we see more pronounced challenges than those projected by the province, largely due to stagnant population growth.
New spending was modest and aimed at spurring investment with $5.7 billion in corporate tax cuts by 2029–30.
Key measures include reducing contribution rates for the Quebec Pension Plan (QPP) and Quebec Parental Insurance Plan (QPIP) ($1.9 billion), extending accelerated depreciation measures ($2.7 billion) and aligning with the federal government by cancelling the planned increase in the capital gains inclusion rate ($1.1 billion).
Reductions in QPP and QPIP rates will also be extended to workers, saving them $1.8 billion over five years. This amounts to an average of under $100 per worker annually.
Targeted tariff relief measures were relatively minor, with $290 million allocated through 2027–28 to support the agricultural, forestry, and fishing sectors.
Following the lead of the federal government, Quebec is planning to stimulate investment by shortening approval timelines for major investment projects. A forthcoming bill will introduce streamlined processes to enhance predictability and reduce regulatory delays for investors.
The government reiterated its commitment to public infrastructure investments, with decennial infrastructure boosted by $11 billion, totaling $164 billion between 2025 and 2035. This is in line with the figures presented in Budget 2025, with an update planned for next year’s budget.

Key insights

Mirroring the federal focus on investment. The Fall Economic Update provided little in the way of new spending. Where spending increased, it concentrated on attracting investment to the province, including measures to reduce corporate tax burdens and shorten approval times for major projects. These policies follow a similar strategy to those announced in the federal budget, where the emphasis was on strengthening the economy for the future. We broadly support this strategy; however, as with the federal budget, we would have preferred to see greater clarity on the anticipated impact of these measures in stimulating investment across the province.

Short term fixes placed on hold. Temporary relief measures, particularly for consumers, were largely absent—a notable choice given recent economic headwinds and the upcoming election in 2026. While the update included some adjustments to personal income taxes, these were modest in scope. Measures such as income tax indexing are standard practice across provinces and do not represent a significant policy shift. The restraint reflects the province’s fiscal tightness, reduced economic growth outlook, and heightened need for fiscal prudence given the uncertainty in the economy.

Return to balance by 2029–30 appears optimistic. The province’s latest update maintains its projection of returning to fiscal balance by 2029–30. However, this outlook hinges on robust revenue growth—an assumption that remains highly uncertain—and incorporates a cumulative $6 billion “gap to be bridged” to achieve balance. The government anticipates that stronger-than-expected economic growth, additional federal transfers, non-use of the contingency reserve, and efficiency gains within the public service will collectively close this gap over the forecast horizon. We consider this too optimistic. The province’s population is likely to remain relatively flat over the coming years given federal and provincial immigration policy, which will constrain potential revenue growth. Moreover, most economic risks linked to trade uncertainty and labour tightness appear skewed to the downside in our view, suggesting greater potential for weaker outcomes than in the scenario presented in the update.