Montreal, March 16, 2023 – Higher interest rates would lead to a rapid increase in debt service payments for the Quebec government, according to a study published this morning by the Montreal Economic Institute.
“Low interest rates and low-cost debt are a thing of the past,” says Renaud Brossard, senior director of communications at the MEI and co-author of the study. “We hope that the rapid return to a balanced budget will be on the menu when Finance Minister Éric Girard unveils his budget next Tuesday.”
The Institute calculates that an increase of 0.76 percentage points in the effective rate on new borrowing by the Quebec government would result in a $1.56‑billion increase in interest payments on the debt in 2027.
This amount is similar to the total income tax paid by 213,809 average Quebec taxpayers—almost equivalent to the population of the city of Longueuil.
Should there be a return to the effective interest rates of the first half of the 2000s, the Institute calculates that servicing the Quebec government’s debt would cost an additional $4.51 billion in 2027.
This amount is equivalent to the total income tax paid by 618,920 average Quebec taxpayers—or around 60,000 more than the population of Quebec City.
“Since the fall economic update was tabled, the policy rate has increased, and so has the interest rate charged on Quebec’s new debt,” says Mr. Brossard. “Given the billions of dollars at play, the government of Quebec needs to be prudent and return to a balanced budget quickly before the situation gets even worse.”
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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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Senior Director, Communications