09:26 AM EDT, 03/26/2025 (MT Newswires) -- Quebec is projecting a record $11.4 billion deficit in FY25/26, before transfers to the Generations Fund, noted Bank of Montreal (BMO).

That shortfall will weigh in at 1.8% of gross domestic product, the deepest relative to the size of the economy since the mid-1990s, when it topped 3%, said the bank. The balance for the fiscal year just ending is, however, tracking somewhat better than expected.

The deficit for FY24/25 is now pegged at $8.1 billion, down from $8.8 billion as of the most recent fiscal update. Notably, this budget is based on the assumption that 10% tariffs on Canadian imports to the United States will be in place for two years, a reasonable middle-ground assumption at this point, stated BMO.

At the same time, contingencies of $2 billion per year are built in for the upcoming two fiscal years, which could absorb some further downside. Indeed, a downside scenario with 25% U.S. tariffs would worsen the balance by another $1.2 billion.

Looking ahead, Quebec will continue to run deficits right through most of the subsequent four-year forecast horizon, after last year's budget did away with near-term budget balance goals. Balance is planned to be reached in FY29/30. While the province in Canada builds in contingencies through the forecast, it will also need to find $2.5 billion in savings by the end of the horizon, added BMO.

Over the five-year period from FY24/25 through FY28/29, the combined deficit is running a "hefty" $20 billion larger, the second year in a row where the profile has deteriorated "significantly." The net debt-to-GDP ratio will top 40% in FY25/26, before peaking just under 42% two years later.

All told, it could have been worse given the economic situation and the desire to push through various spending measures, but that doesn't change the fact that Quebec's fiscal outlook continues to get persistently weaker, pointed out the bank.

This budget includes $2.6 billion in net new policy announcements for FY25/26.

According to BMO, Summary of Major Policy Measures:

-- Loan support to businesses impacted by tariffs. Liquidity of $1.6 billion will be made available at a fiscal cost of $200 million in FY25/26.

-- Supporting investment projects with $3.5 billion over five years. This includes extending accelerated CCA on manufacturing and clean energy, if/when federal changes come into force.

-- A wide range of measures to simplify and update the tax system comes with a net increase in revenues of $500 million per year by FY29/30. Some examples include: harmonizing the tax on insurance premiums to the provincial sales tax starting in 2027, bringing in almost $1.0 billion over four years; scrapping various underutilized credits; and implementing some new fees such as $125 per year for electric vehicles.

-- An increase in the capital gains inclusion rate to match proposed federal changes is built into the budget, but that will presumably not go ahead.

-- $4.9 billion over six years for health and social services, education, and higher education.

-- The net debt target was raised 2.5 ppts to 32.5% of GDP by FY37/28 (with a range of more or less 2.5% of GDP). The intermediate target was bumped up from 33% to 35.5% of GDP by FY32/33.

-- The province will draw $2.2 billion from the Generations Fund to reduce borrowing this coming year, with that amount to rise to $2.8 billion by FY29/30.

-- Borrowing program of $29.7 billion for FY25/26.