Financement Quebec

Annual Report(Guarantor's)-Ex

RNS Number : 0210U
Financement Quebec
17 June 2009
 



Regulatory Announcement





Re: Financement-Québec - U.S.$2,000,000,000 EMTN Programme


Exhibit 99.1 of the Guarantor's Annual Report (on Form 18-K/A) dated June 4, 2009 for the fiscal year ended March 31, 2009


EXHIBIT 99.1




DESCRIPTION

This description of Québec is dated as of June 4, 2009 and appears as Exhibit 99.1 to Québec's Annual Report on Form 18-K to 

the U.S. Securities and Exchange Commission for the fiscal year ended March 31, 2009.



The delivery of this document at any time does not imply that the information is correct as of any time subsequent to its date. This document (other than as part of a prospectus contained in a registration statement filed under the U.S. Securities Act of 1933) does not constitute an offer to sell or the solicitation of an offer to buy any securities of Québec.


Table of Contents

    


    Page

Foreign Exchange    2

Summary    3

Québec    

Overview    

Constitutional Framework    

Government    7

Native Peoples    

Economy    9

Economic Developments in 2008    

Economic Structure    

Free Trade Agreements    16

Government Finances    18

Financial Administration    18

2008-2009 Preliminary Results    21

2009-2010 Budget    21

Consolidated Revenue Fund Revenue    23

Consolidated Revenue Fund Expenditure     25

Government Employees and Collective Unions …. 26



Consolidated Non-Budgetary Transactions    27

Government Enterprises and Agencies    30

Enterprises Included in the Government's Reporting Entity    32

Agencies Whose Reporting Entity Is Included in the Government's Reporting Entity    35

Agencies Which Conduct Fiduciary Transactions That Are Not Included in the Government's Reporting Entity    36

Public Sector Debt    38

Government Debt    39

Guaranteed Debt    41

Funded Debt of the Municipal Sector and Other Institutions    41

Government's Commitments    42

Where You Can Find More Information    43

Forward-Looking Statements    44

Supplementary Information    45



Foreign Exchange

Canada maintains a floating exchange rate for the Canadian dollar in order to permit the rate to be determined by market forces without intervention except as required to maintain orderly conditions. Annual average noon spot exchange rates for the major foreign currencies in which debt of Québec is denominated, expressed in Canadian dollars, are shown below.

Foreign Currency


2005


2006


2007

2008

2009(1)

United States Dollar    


$1.2116


$1.1341


$1.0748

$1.0660

$1.2231

Japanese Yen    


0.0110


0.0098


0.0091

0.0104

0.0129

Swiss Franc    


0.9746


0.9050


0.8946

0.9840

1.0724

Pound Sterling    


2.2067


2.0886


2.1487

1.9617

1.7872

New Zealand Dollar    


0.8542


0.7368


0.7892

0.7547

0.6769

Mexican Pesos    


0.1112


0.1041


0.0983

0.0959

0.0877

Australian Dollar    


0.9243


0.8543


0.8982

0.9002

0.8471

Euro    


1.5090


1.4237


1.4691

1.5603

1.6116

Hong Kong Dollar     


0.1557


0.1460


0.1377

0.1369

0.1578

(1)     Monthly average through the end of May 2009.

Source: Bank of Canada.

In this document, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in Canadian dollars. The fiscal year of Québec ends March 31. 'Fiscal 2009' and '2008-2009' refer to the fiscal year ended March 31, 2009, and, unless otherwise indicated, '2008' means the calendar year ended December 31, 2008.  'Fiscal 2010' and '2009-2010' refer to the fiscal year that will end on March 31, 2010. Other fiscal and calendar years are referred to in a corresponding manner. Any discrepancies between the amounts listed and their totals in the tables included in this document are due to rounding.













Summary

The information below is qualified in its entirety by the detailed information provided elsewhere in this document.



























Economy













2004


2005


2006


2007


2008




(dollar amounts in millions)



GDP at current market prices    

    $262,761


    $271,059


  $281,521


  $296,692


  $301,479



% change - GDP in chained 2002 dollars (1)     

    2.7%


    1.5%


  1.7%


  2.6%


  1.0%



Personal income    

    $217,925


    $225,944


  $236,091


  $250,077


  $258,915



Capital expenditures    

    $49,767


    $49,470


  $51,809


  $57,055


  $62,132



International exports of goods    

    $68,478


    $70,992


  $73,177


  $69,922


  $71,022



Population at July 1 (in thousands)    

    7,536


    7,582


  7,632


  7,686


  7,751



Unemployment rate    

    8.5%


    8.3%


  8.0%


  7.2% 


  7.2%



Consumer Price Index - % change    

    2.0%


    2.3%


  1.7%  


  1.6%


  2.1%



Average exchange rate (US$ per CA$)    

    0.77


    0.83


  0.88


  0.93


  0.94





























Consolidated Financial Transactions (2)





Fiscal year ending March 31






2006




2007




2008


Preliminary

Results

2009


Budget

Forecast

2010 (3)




(dollar amounts in millions)















Consolidated Revenue Fund:












Own-source revenue    

    $45,743


    $49,651


    $49,464


    $48,555


    $47,371



Federal transfers    

    9,969


    11,015


    13,629


    13,924


    14,841



Total revenue    

    55,712


    60,666


    63,093


    62,479


    62,212



Program spending     

    (49,229    )


    (51,734    )


    (54,826    )


    (57,400    )


    (59,989    )



Debt service    

    (6,875    )


    (7,039    )


    (7,021    )


    (6,589    )


    (6,104    )



Total expenditure    

    (56,104    )


    (58,773    )


    (61,847    )


    (63,989    )


    (66,093    )



Net results of Consolidated Revenue Fund    

    (392    )


    1,893


    1,246


    (1,510    )


    (3,881)



Net results of consolidated entities     

    429


    100


    404


    205


    355



Surplus (deficit) for the purposes of the public accounts     

    37


    1,993


    1,650


    (1,305    )


    (3,526    )



Deposits in the Generations Fund     

    -


    (584    )


    (649    )


    (701    )


    (715)



Budgetary reserve (4)     

    -


    (1,300    )


    (1,001    )


    2,006


    295



Consolidated budgetary balance for the purposes of the Balanced Budget Act    

    37


    109


    0


    0


    (3,946)



Deposit of dedicated revenues in the Generations Fund (5)     

    -


    584


    449


    569


    715



Consolidated budgetary balance    

    37


    693


    449


    569


    (3,231)



Consolidated non-budgetary requirements    

    (246    )


    (3,453    )


    (1,156    )


    (695    )


    (3,043    )



Consolidated net financial requirements    

    $(209    )


    $(2,760    )


    $(707    )


    $(126    )


    $(6,274    )








Funded Debt of Public Sector




As of March 31




Unadjusted

2005(6)



Unadjusted

2006(6)




2007




2008


Preliminary

Results

2009



(dollar amounts in millions)(7)





Government Funded Debt











    Borrowings - Government    

    $77,923


    $81,995


    $109,714


    $112,586


    $124,837


    Borrowings - to finance Government Enterprises    

    3,234


    2,646


    31


    25


    224


    Borrowings - to finance Municipal Bodies (8)    

    2,799


    2,604








Government Guaranteed Debt (9)    

    40,600


    41,947


    32,674


    32,399


   36,668


Municipal Sector Debt    

    14,239

    14,150

    15,669

    14,150

    16,409


    17,321


    18,639


Other Institutions    

    4,696


    4,040


    2,023


    1,552


    1,088


Public Sector Funded Debt (10)    

    $143,491


    $148,901


    $160,851


    $163,883


   $181,456


Per capita ($)    

    $19,041


    $19,639


    $21,076


    $21,322


    $23,411


As a percentage of (11)











    GDP    

    54.6%


    54.9%


    57.1%


    55.2%


    60.2%


    Personal income     

    65.8%


    65.9%


    68.1%


    65.5%


    70.1%





(1)    Adjusted for the effects of inflation in the currency from year to year.

(2)    The figures for Fiscal 2006 have not been restated in accordance with the accounting reform implemented in Fiscal 2007. Under the 2006-2007 accounting reform, the health and social services and education networks were incorporated into the Government reporting entity and the Government's accounting policies have been changed to comply with Canadian generally accepted accounting principles (GAAP) applicable to the public sector. The impact of the accounting reform on the results for Fiscal 2008 was to reduce surplus for the purposes of the public accounts by $853 million.

(3)    The categories set forth reflect the presentation of the 2009-2010 Budget.

(4)    A negative amount indicates an allocation to the reserve and a positive amount, a use of the reserve.

(5)    The Generations Fund was created in June 2006 by the adoption of the Act to reduce the debt and establish the Generations Fund and is a separate entity from the Consolidated Revenue Fund. This law establishes the fund as a permanent tool for reducing the debt burden. In addition, it stipulates that the monies accumulated in the Generations Fund are dedicated exclusively to repaying the debt.

(6)    The figures for Fiscal 2005 and Fiscal 2006 have not been restated in accordance with the accounting reform implemented in Fiscal 2007, which resulted in the consolidation of additional entities into the Government reporting entity.

(7)    Canadian dollar equivalent at the dates indicated for loans in foreign currencies after taking into account currency swap agreements and foreign exchange forward contracts. 

(8)  Following the accounting reform implemented in Fiscal 2007, the Borrowings - to finance Municipal Bodies are reclassified in the Borrowings - Government.

(9)    Represents mainly the debt of Hydro-Québec.

(10)    Includes debt covered by the Government's commitments. See ' Public Sector Debt - Government's Commitments'.

(11)    Percentages are based upon the prior calendar year's GDP and Personal income.






  Québec

Overview

Québec is the largest by area of the ten provinces in Canada (1,541,000 square kilometers or 594,860 square miles, representing 15.4% of the geographical area of Canada) and the second largest by population (7.8 million, representing 23.2% of the population of Canada, as of January 2009).

Québec has a modern, developed economy, in which the service sector contributed 73.7%, the manufacturing industry 18.3%, the construction industry 6.0% and the primary sector 2.0% of real GDP at basic prices in chained 2002 dollars in 2008. The leading manufacturing industries in Québec are primary metal products (including aluminum smelting), food products, transportation equipment products (including aircraft and motor vehicles and associated parts), petroleum and coal products, paper products, chemical products and fabricated metal products. Québec also has significant hydroelectric resources, generating 31.3% of the electricity produced in Canada in 2008.

Montréal and Ville de Québec, the capital of Québec, are the centers of economic activity. Montréal is one of the main industrial, commercial and financial centers of North America and is Canada's second largest urban area as measured by population. Montréal is also Canada's largest port, situated on the St. Lawrence River, which provides access to the Atlantic Ocean and the inland navigation system of the Great Lakes.

French is the official language of Québec and is spoken by approximately 95% of its population.

Constitutional Framework   

Canada is a federation of ten provinces and three federal territories, with a constitutional division of responsibilities between the federal and provincial governments as set out in The Constitution Acts, 1867 to 1982 (the 'Constitution').

Under the Constitution, each provincial government has exclusive authority to raise revenue for provincial purposes through direct taxation within its territorial limits. Each provincial government also has exclusive authority to regulate education, health, social services, property and civil rights, natural resources, municipal institutions and, generally, to regulate all other matters of a purely local or private nature in its province, and to regulate and raise revenue from the exploration, development, conservation and management of natural resources.

The federal parliament is empowered to raise revenue by any method or system of taxation and generally has authority over matters or subjects not assigned exclusively to the provinces. It has exclusive authority over the regulation of trade and commerce, currency and coinage, banks and banking, national defense, naturalization and aliens, postal services, navigation and shipping, and bills of exchange, interest and bankruptcy.

The Constitution Act, 1982 (the 'Constitution Act'), enacted by the parliament of the United Kingdom, provides, among other things, that amendments to the Constitution be effected in Canada according to an amending formula. The Constitution Act also includes various modifications to the Constitution. The Constitution Act came into effect in 1982 notwithstanding the opposition of the National Assembly of Québec (the 'National Assembly') and the government of Québec (the 'Government') to certain clauses relating to provincial jurisdiction and the terms of the amending formula.

Since 1982, the federal and provincial governments have attempted to remedy this situation by signing two constitutional accords, neither of which was ratified. The first, signed in 1987 but not ratified by the legislative assemblies of two provinces, included a proposal to recognize Québec as a distinct society within Canada. The second, dated 1992, which was also signed by the federal territories and the national associations of native peoples, was rejected by a majority of voters in six provinces, including Québec.

On September 7, 1995, the Government, then formed by the Parti Québécois, which has as one of its principal objectives the sovereignty of Québec, presented a Bill entitled An Act respecting the future of Québec in the National Assembly. This act included, among other things, provisions authorizing the National Assembly to proclaim the sovereignty of Québec following a formal offer to the Government of Canada of a treaty of economic and political partnership. This act was to be enacted only after a favorable vote in a referendum. Such a referendum was held on October 30, 1995. The result was 49.4% in favor of this act and 50.6% against.

In 1996, the federal government, by way of a reference to the Supreme Court of Canada (the 'Supreme Court'), asked the court to determine the legal position, both under Canadian constitutional law and public international law, of a unilateral secession of Québec from Canada. The reference before the Supreme Court was heard without Québec's participation in the hearing. On August 20, 1998, the Supreme Court decided, among other things, that under the Constitution, Québec may not secede unilaterally from Canada without negotiation with the other participants in the Canadian Confederation within the existing constitutional framework; Québec does not have the right under international law to secede unilaterally from Canada; nonetheless, the clear repudiation by the people of Québec of the existing constitutional order and the clear expression of the desire to pursue secession would confer legitimacy on demands for secession, and place an obligation on the other provinces and the federal government to acknowledge and respect that expression of democratic will by entering into negotiations and conducting these negotiations in accordance with constitutional principles, including federalism, democracy, constitutionalism, the rule of law, and the protection of minorities; and Québec would have to negotiate in accordance with these constitutional principles. The Supreme Court recognized, however, that should Québec, having negotiated in conformity with constitutional principles and values, face unreasonable intransigence on the part of other participants at the federal or provincial level, Québec would be more likely to be recognized than if it did not itself act according to constitutional principles in the negotiation process.

The Québec Liberal Party, a federalist party, won a third consecutive mandate in December 2008. With regards to the constitutional issue, the Québec Liberal Party pursues a policy that emphasizes the values of Canadian federalism. In particular, its platform is focused on strengthening Québec's place within the federation, on forming new alliances with the other provinces, and on promoting intergovernmental cooperation.

Government

Legislative power in Québec is exercised by the Parliament of Québec, which is comprised of the Lieutenant-Governor, who is appointed by the Governor General in Council of Canada, and the National Assembly. The National Assembly consists of 125 members elected by popular vote from single member districts. According to constitutional practice, the leader of the party with the largest number of elected members becomes Prime Minister and forms the Government.

Executive power in Québec is vested in the Lieutenant-Governor acting with, or on the recommendation of, the Conseil exécutif, which consists of the Prime Minister and the Cabinet (Conseil des ministres). The Conseil exécutif is accountable to the National Assembly.

The current National Assembly consists of 65 members of the Québec Liberal Party, 51 members of the Parti québécois, 6 members of the Action Démocratique du Québec, 1 member of Québec solidaire and 2 seats are vacant. Members are elected for a term of five years, subject to earlier dissolution of the National Assembly by the Lieutenant-Governor upon the recommendation of the Prime Minister or following the Government's defeat on a vote of no confidence. The mandate of the current Government extends through the next election, which must be called no later than December 2013.

Native Peoples 

Various aboriginal communities in Québec have initiated legal actions to have the existence of their ancestral rights (including aboriginal title) recognized and obtain damages and interest as compensation for alleged infringements of their rights. The ancestral rights of aboriginal people are recognized under section 35 of the Constitution. Taken as a whole, aboriginal people are claiming $15.9 billion in damages and interest through these actions.


Included among these legal actions are three claims for damages and interest filed as part of efforts to contest the validity of the provisions of the 1975 James Bay and Northern Québec Agreement (the 'JBNQA'). The effect of that agreement was to extinguish all aboriginal claims, rights, titles and interests, regardless of their nature, in respect of the territory covered by the JBNQA.

governments as well as Hydro-Québec failed in their fiduciary obligation by allowing, through action or inaction, infringements on their aboriginal title and their ancestral rights arising from industrial development and development of natural resources. They are claiming from the defendants compensation in the amount of $1.5 billion. The Innu of Uashat-Maliotenam also claim an accounting regarding the money collected for building structures, installations and equipment on the traditional territory they claim, an account of the administration of the assets thereon, as well as the creation of a constructive trust on the structures, equipment and installations of the defendants. Further to an agreement reached by the parties, this legal action was suspended until June 2010. The suspension was lifted by the court on January 27, 2009. Québec intends to contest this claim. 

Other actions for damages and interest have been filed by aboriginal communities to obtain compensation for alleged infringements of their rights. Two of these actions were filed by the Innu Nation of Betsiamites (also known under the name Pessamit). 

In December 1996, Philomène and Georges McKenzie, of the community of Uashat-Maliotenam near Sept-Îles, filed a motion for a declaratory judgment to have declared, in favor and on behalf of their families, an aboriginal title and ancestral rights, including for hunting, fishing and trapping on the land they claim as their traditional lands (Philomène McKenzie et al. v. Attorney-General of Québec et al. (Superior Court, no 500-05-027983-962)) (Uashat I). The territory claimed covers roughly 1,000 square miles and is located north of Sept-Îles. In addition, they are asking that any mining project be subject to their consent. They are also asking for a permanent injunction against any project located on the territory they claim and the work resulting from it. The claimants are also demanding $7 million in damages and interest. This case remained latent from 1997 until the spring of 2007, when the announcement of the Lac Bloom project gave new impetus to the dispute. On April 13, 2007, the claimants served notice announcing an amendment to their petition, adding ten new claimants and raising the land area on which ancestral rights and aboriginal title are claimed from 1,000 square miles to 16,679 km2. The amount of damages claimed has also risen from $7 million to $350 million.


Economy

Economic Developments in 2008

Canada.  Gross domestic product ('GDP') adjusted for inflation in chained 2002 dollars ('real GDP'), as published in the National Economic Accounts on June 1, 2009, increased at a rate of 0.4% in 2008, compared with a rate of 2.5% in 2007. This growth was mainly attributable to consumer spending and government investment. Final domestic demand increased by 2.6% in 2008, compared to 4.1% in 2007. Real consumer spending increased by 3.0% in 2008, compared to a 4.6% increase in 2007. International exports decreased by 4.7% in volume and increased by 5.2% in value in 2008 compared with increases of 1.1% and 1.9%, respectively, in 2007. International imports increased by 0.8% in volume and by 6.4% in value in 2008 compared with increases of 5.8% and 3.5%, respectively, in 2007.

Non-residential investment increased by 0.2% in 2008, due in particular to a 0.5% increase in machinery and equipment. Residential investment decreased by 2.7% in 2008, due to a 7.6% decrease in housing starts. Government investment increased by 12.2% in 2008. Government expenditure on goods and services increased by 3.7% in 2008.

The Consumer Price Index ('CPI') increased by 2.3% in 2008. Overall employment rose 1.5% in 2008, while the unemployment rate increased to 6.1% from 6.0% in 2007.

QuébecReal GDP growth as published in the Provincial Economic Accounts on April 27, 2009 was 1.0% in 2008, compared to 2.6% in 2007. Final domestic demand increased by 3.3% in real terms in 2008, compared to 4.7% in 2007. Real consumer spending increased by 3.1% in 2008, compared to an increase of 4.3% in 2007. International exports decreased by 3.5% in volume and increased by 1.0% in value in 2008, compared with increases of 0.9% and 0.5%, respectively, in 2007. International imports increased by 2.4% in volume and by 10.2% in value in 2008, compared with increases of 5.8% and 3.9%, respectively, in 2007. 

The value of non-residential investment increased by 12.0% in 2008, with a 29.8% increase in the public sector and a 1.5% increase in the private sector. The value of residential investment increased by 2.8% in 2008.

The CPI increased by 2.1% in 2008. Overall employment rose 0.8% in 2008, while the unemployment rate remained stable at 7.2%.


Table 1

Main Economic Indicators of Québec (1)





2004




2005




2006




2007




2008


Compound Annual

Rate of Growth

2003-2008



(dollar amounts in millions, except for per capita amounts)



GDP













    At current market prices    


  $262,761


  $271,059


  $281,521


  $296,692


  $301,479





  4.8%


  3.2%


  3.9%


  5.4%


  1.6%


3.8%

    In chained 2002 dollars     


  $251,028


  $254,708


  $259,032


  $265,888


  $268,609





  2.7%


  1.5%


  1.7%


  2.6%


  1.0%


1.9%

    Per capita     


  $ 33,311


  $ 33,594


  $ 33,942


  $ 34,594


  $ 34,657





  2.0%


  0.9%


  1.0%


  1.9%


  0.2%


1.2%

Personal income    


  $217,925


  $225,944


  $236,091


  $250,077


  $258,915





  4.7%


  3.7%


  4.5%


  5.9%


  3.5%


4.5%

    Per capita    


  $ 28,918


  $ 29,800


  $ 30,936


  $ 32,537


  $ 33,406





  4.0%


  3.1%


  3.8%


  5.2%  


  2.7%


3.7%

Capital expenditures    


  $ 49,767


  $ 49,470


  $ 51,809


  $ 57,055


  $ 62,132





  14.4%


  -0.6%


  4.7%


  10.1%


  8.9%


7.4%

Value of manufacturers' shipments…..  


  $134,850


  $140,084  


  $146,657


  $148,260


$150,868





  0.9%


  3.9%


  4.7 %


  1.1%


  1.8%


2.5%

Retail trade    


  $ 78,518


  $ 82,533


  $ 86,709


  $ 90,663


  $ 95,321





  4.2%


  5.1%


  5.1%


  4.6%


  5.1%


4.8%



(in thousands of persons)



Population (at July 1)    


  7,536


  7,582


  7,632


  7,686


  7,751





  0.7%


  0.6%


  0.7%


  0.7%


  0.8%


0.7%

Labor force    


  4,024


  4,053


  4,094


  4,150


  4,185





  0.8%


  0.7%


  1.0%


  1.4%


  0.8%


0.9%

Employment    


  3,681


  3,717


  3,765


  3,852


  3,882





  1.4%


  1.0%


  1.3%


  2.3%


  0.8%


1.4%

Unemployment rate (level in percentage)    


  8.5%


  8.3%


  8.0%  


  7.2%


7.2%





(2002 = 100)



CPI    


  104.5 120.7


  106.9 123.5


  108.7 108.7125.6


  110.4


  112.7





  2.0%


  2.3%


  1.7%


  1.6%


  2.1%


1.9%














(1)    Unless otherwise indicated, percentages are percentage changes from the previous year.

Source: Statistics Canada.


Economic Structure


In 2008, Québec accounted for 20.3% of Canada's real GDP. The service sector accounted for 73.7% of Québec's real GDP, compared with 24.3% for the secondary sector and 2.0% for the primary sector. Québec's economy is influenced by developments in the economies of its major trading partners, especially the United States, which is Québec's largest export market. In 2008, the value of exports (including to other Canadian provinces) represented 51.3% of Québec's GDP.

The following table shows the contribution of each sector to real GDP, which includes net taxes (taxes less subsidies) paid on factors of production. GDP is a measure of value added (the total value of goods delivered and services rendered less the cost of materials and supplies, fuel and electricity).

Table 2

Real Gross Domestic Product by Sector at Basic Prices in Chained 2002 Dollars(1)






% of Total 2007


% of Total 2008


2004

2005

2006

2007

Québec

Canada

2008

Québec

Canada



(dollar amounts in millions)

Primary Sector:










    Agriculture, forestry, fishing and hunting    

$4,637

$4,672

$4,464

$4,269

1.8%

2.2%

$3,949

1.6%

2.1%

    Mining and oil and gas extraction    

1,079

991

1,014

1,079

0.4

4.7

1,106

0.4

4.5


5,716

5,663

5,478

5,348

2.2

6.9

5,055

2.0

6.6











Secondary Sector:










    Manufacturing    

46,487

47,066

46,638

46,557

19.0

15.2

  45,366

18.3

14.3

    Construction    

12,810

12,554

12,827

13,880

5.6

6.0

14,845

6.0

6.1


59,297

59,620

59,465

60,437

24.6

21.2

60,211

24.3

20.4











Service Sector:










    Community, business and 

personal services    

59,174

59,982

61,534

63,020

25.7

24.1

64,395

25.9

24.5

    Finance, insurance and real estate    

38,666

39,544

40,527

41,812

17.1

19.7

42,803

17.3

20.2

    Wholesale and retail trade    

26,253

26,782

27,947

29,278

12.0

11.7

30,060

12.1

11.8

    Governmental services    

14,916

14,988

15,328

15,509

6.3

5.5

15,857

6.4

5.7

    Transportation and warehousing    

10,059

10,283

10,320

10,390

4.2

4.6

10,490

4.2

4.6

    Other utility services    

9,262

9,544

9,462

9,852

4.0

2.6

9,731

3.9

2.5

    Information and cultural services…………

8,916

9,081

9,354

9,575

3.9

3.6

9,668

3.9

3.7


167,247

170,204

174,472

179,436

73.2

72.0

183,005

73.7

73.0

Real GDP    

$232,260

$235,487

$239,415

$245,221

100.0%

100.0%

$248,270

100.0%

100.0%











(1)  North American Industrial Classification System (NAICS) in chained 2002 dollars. For the chained 2002 dollars, the aggregate amounts are not equal to the sums of their components. 

Source: Statistics Canada.

Primary Sector. In 2008, the primary sector, which includes agriculture, forestry, fishing and hunting, and mining and oil and gas extraction, contributed 2.0% of real GDP and accounted for 2.4% of employment in Québec. Québec's forests, covering 1,140,000 square kilometers, or 440,000 square miles, are among its most important natural resources. Québec's logging operations were estimated to have produced approximately 0.9 billion cubic feet of timber in 2008, generating revenue of $1.7 billion from sales to domestic and foreign customers. In 2008, there was a reduction in timber production due to a decrease in demand for lumber and wood products (the value of shipments decreased by 8.4% and the value of exports by 30.4%).

In mining and oil and gas extraction, which represented 21.9% of the primary sector in 2008, production is concentrated mainly in iron ore, gold, nickel, stone, cement, zinc and copper. In 2008, the value of mineral production amounted to $5.2 billion.  


Secondary Sector. In 2008, the secondary sector, which consists of the manufacturing and construction industries, contributed 24.3% of real GDP and accounted for 19.6% of employment in Québec. In terms of real GDP, the construction industry recorded a 7.0% increase in 2008 over 2007, with a strong increase in non-residential construction offsetting a 1.3% decrease in housing starts. Real GDP in manufacturing decreased by 2.6% in 2008, with a 6.2% employment decrease in that industry. The manufacturing industries that were most affected are clothing (-23.0% in real GDP and -21.0% in employment), primary textile and textile products (-15.7% in real GDP and -23.3% in employment), wood products (-13.8% in real GDP and -10.8% in employment), chemical products (-10.9% in real GDP and -8.3% in employment) and computer and electronic products (-4.7% in real GDP and -11.4% in employment). The total value of manufacturers' shipments increased by 1.8% to $150.9 billion in 2008, representing 24.9% of total Canadian shipments. The value of shipments of primary metals increased slightly by 0.3% in 2008, due to weak world demand. Durable goods accounted for 58.5% of manufacturing real GDP and 56.1% of manufacturing employment. The leading manufacturing industries in Québec are primary metal products (including aluminum smelting), food products, transportation equipment products (including aircraft and motor vehicles and associated parts), petroleum and coal products, paper products, chemical products and fabricated metal products. As a result of its competitive advantage in low-cost electricity production, Québec is one of the world's leading producers of aluminum. 


Table 3

Value of Manufacturers' Shipments (1)




2004



2005



2006



2007


% of Total

2007



2008


% of Total 2008




(dollar amounts in millions)


Primary metals      


$15,144


  $15,749


  $21,708


  $22,847


15.4%


   $22,924


  15.2%  

Food     


15,103


14,943


15,943


16,907


11.4


17,827


11.8

Transportation equipment       


14,181


16,297


16,228


16,648


11.2


17,805


11.8

Petroleum and coal       


9,924


13,430


14,235


14,666


9.9


17,604


11.7

Paper    


10,604


10,536


11,871


9,924


6.7


10,077


6.7

Chemicals     


9,203


9,847


11,199


10,750


7.3


9,807


6.5

Fabricated metals    


6,982


7,285


7,307


8,151


5.5


8,418


5.6

Wood    


9,508


8,543


7,915


7,119


4.8


6,519


4.3

Plastics and rubber    


6,155


6,403


6,731


6,425


4.3


6,178


4.1

Machinery    


5,189


5,227


5,482


5,983


4.0


6,152


4.1

Computers and electronics……………..


6,509


6,320


4,997


4,616


3.1


4,251


2.8

Furniture and related products    


4,011


3,929


3,682


4,062


2.8


3,863


2.5

Other    


22,337


21,575


20,359


20,162


13.6


19,443


12.9



$134,850


$140,084


$146,657


$148,260


100.0%


$150,868


100.0%
















(1)    North American Industrial Classification System (NAICS).  

Source: Statistics Canada.


Service SectorThe service sector includes a wide range of activities such as community, business and personal services, finance, insurance and real estate, wholesale and retail trade, governmental services, transportation and warehousing, other utility services and information and cultural services. In 2008, the service sector contributed 73.7% of real GDP and accounted for 78.0% of employment in Québec.

In terms of real GDP, increases in the service sector in 2008 occurred in wholesale and retail trade (2.7%), finance, insurance and real estate (2.4%), community, business and personal services (2.2%), governmental services (2.2%), transportation and warehousing (1.0%) and information and cultural services (1.0%). Real GDP in other utility services decreased by 1.2%.

Due to Québec's large territory, transportation facilities are essential to the development of its economy. Water transportation is provided mainly through the St. Lawrence River Seaway. Approximately 26.7% of all international tonnage handled in Canadian ports in 2006 (the most recent year for which information is available) passed through Québec's shipping facilities. Highway, rail and air transportation systems service the populated areas, with higher concentrations in the metropolitan areas of Montréal and Ville de Québec.

The financial sector includes large Canadian and foreign financial institutions, Québec's cooperative institutions and Government financial intermediary enterprises and fiduciary agencies, including the Caisse de dépôt et placement du Québec (the 'Caisse'), one of the largest institutional fund managers in Canada and in North America. 


Capital ExpendituresIn 2008, the value of capital expenditures by the private and public sectors increased by 8.9% in Québec. Total capital expenditures increased as a result of a 12.0% increase in non-residential investment and a 2.8% increase in residential investment. Non-residential investment increased by 29.8% in the public sector and 1.5% in the private sector. The 2008-2013 Québec Infrastructure Plan is the primary cause of the strong increase in public sector investment.

The increase in non-residential investment resulted in large part from increases in mining and oil and gas extraction (104.4%), governmental, educational, health and social services (30.4%), information, cultural and other utilities (13.5%), business services, accommodation and other services (12.3%), manufacturing (7.4%), construction (7.4%) and wholesale and retail trade (1.6%). These increases were partially offset by decreases in finance, insurance and real estate operators (-18.6%), agriculture, forestry, fishing and hunting (-16.3%) and transportation and warehousing (-3.9%).


Table 4

Private and Public Sectors Capital Expenditures in Québec (1)




2004 



2005



2006



2007


% of Total 2007



2008


% of Total 2008



(dollar amounts in millions)

Non-residential Investment:















    Governmental, educational, health and 

social services    


$6,959


$7,735


$8,076


$9,672


17.0%


$12,615


20.3%

    Information, cultural and other utilities      


5,977


5,787


5,478


6,302


11.0


7,154


11.5

    Finance, insurance and real estate operators    


6,170


5,969


7,203


6,876


12.1


5,596


9.0

    Manufacturing     


4,713


4,124


4,047


3,878


6.8


4,164


6.7

    Mining and oil and gas extraction    


635


724


984


1,505


2.6


3,077


5.0

Wholesale and retail trade……………………


2,351


2,384


2,480


3,018


5.3


3,066


4.9

    Business services, accommodation and 

other services     


2,103


2,065


2,068



2,309



4.0



2,593



4.2

    Transportation and warehousing    


1,821


1,808


1,994


2,533


4.4


2,435


3.9

    Construction    


1,086


1,104


1,136


884


1.6


949


1.5

    Agriculture, forestry, fishing and hunting    


716


692


678


804


1.4


673


1.1



$32,531


$32,392


$34,144


$37,781


66.2%


$42,322


68.1%

Residential Investment    


17,236


17,078


17,665


19,274


33.8


19,810


31.9



$49,767


$49,470


$51,809


$57,055


100.0%


$62,132


100.0%
















Private sector    


$38,553


$37,464


$39,372


$43,016


75.4%


$43,911


70.7%

Public sector    


11,214


12,006


12,437


14,039


24.6


18,221


29.3



$49,767


$49,470


$51,809


$57,055


100.0%


$62,132


100.0%
















(1)    North American Industrial Classification System (NAICS).

Source: Statistics Canada.

 

 Exports and Imports.  In 2008, Québec's exports of goods and services totaled $154.6 billion of which $93.8 billion (60.7%) were international exports and $60.8 billion (39.3%) were inter-provincial exports. Québec's international exports represented 16.8% of Canada's total exports. Québec's imports of goods and services totaled $178.4 billion of which $112.6 billion (63.1%) were international imports and $65.8 billion (36.9%) were inter-provincial imports. Québec's international imports represented 21.1% of Canada's total imports. In 2008, Québec's external sector (as defined under the Provincial Economic Accounts of Statistics Canada) registered an overall deficit of $23.8 billion, a net result of a deficit of $18.8 billion on international trade and a deficit of $5.0 billion on inter-provincial trade. In 2007, Québec registered an overall deficit of $13.5 billion, a net result of a deficit of $9.3 billion on international trade and a deficit of $4.2 billion on inter-provincial trade. The deficit in 2008 reflects mainly the impact of a strong Canadian dollar on international trade and a surge in oil prices. A strong Canadian dollar resulted in lower Canadian dollar prices for export goods that are normally traded in U.S. dollars, which put downward pressure on the value of exports. The value of imports was boosted by a strong domestic economy and a surge in oil prices. Imports, excluding crude oil, were also stimulated by a decline in Canadian dollar prices of imports resulting from a strong Canadian dollar.


International exports of goods originating from Québec, calculated by the Institut de la statistique du Québec from data on Canada's total exports of goods, were $71.0 billion for 2008, compared with $69.9 billion for 2007, representing an increase of 1.6%. In 2008, increases occurred in the value of exports of scientific equipment (30.0%), machinery (8.3%), copper and alloys (7.7%) and newsprint and printing paper (7.5%). These increases were partially offset by decreases in the value of exports of lumber and wood products (-30.4%), electronic products (-16.7%), aluminum and alloys (-5.2%), aircraft and associated parts (-4.9%), tools and other equipment (-4.1%), chemical products (-3.4%) and plastic products (-3.2%).



The United States is Québec's principal international export market, accounting for 72% of the international exports of goods in 2008.

Table 5

Québec's International Exports of Goods




2004



2005



2006



2007


% of Total 2007



2008


% of Total 2008



(dollar amounts in millions)

Aircraft and associated parts    


$9,370


  $9,560


  $9,010


  $9,446


13.5%


  $8,983


12.6%

Aluminum and alloys    


5,258


5,888


7,880


8,034


11.5


7,615


10.7

Newsprint and printing paper    


3,839


4,055


4,107


3,543


5.1


3,809


5.3

Chemical products      


2,605


2,897


3,059


3,293


4.7


3,183


4.5

Machinery     


2,293


2,484


2,533


2,609


3.7


2,826


4.0

Copper and alloys      


1,188


1,504


2,812


2,286


3.3


2,463


3.5

Scientific equipment      ……………………………….


1,194


1,354


1,675


1,852


2.7


2,408


3.4

Electronic products     ……………………………….


4,905


4,894


3,903


2,468


3.5


2,057


2.9

Tools and other equipment    


2,327


2,265


2,122


2,094


3.0


2,007


2.8

Lumber and wood products ………………


3,991


3,615


3,064


2,328


3.3


1,620


2.3

Plastic products    


1,462


1,640


1,647


1,668


2.4


1,615


2.3

Other goods    


30,046


30,836


31,365


30,301


43.3


32,436


45.7

Total


$68,478


$70,992


$73,177


$69,922


100.0%


$71,022


100.0%
















Source: Institut de la statistique du Québec. 


Table 6

Québec's International Imports of Goods




2004



2005



2006



2007


% of Total 2007



2008


% of Total 2008



(dollar amounts in millions)

Mineral fuels, mineral oils, bituminous substances and mineral waxes    


$11,207


$16,992


$18,379


$18,128


22.4%


$22,236


25.4%

Motor vehicles, trailers, bicycles, motorcycles and other similar vehicles    


10,356


10,673


11,296


11,786


14.6


11,420


13.1

Nuclear reactors, boilers, machinery and mechanical appliances    


8,574


9,264


8,910


7,626


9.4


8,190


9.4

Electrical or electronic machinery and equipment    


7,710


7,913


7,210


5,981


7.4


5,755


6.6

Aircraft and spacecraft    


1,886


2,140


2,172


3,894


4.8


3,611


4.1

Inorganic chemicals and compounds of precious metals and radioactive elements    


1,287


1,568


1,958


2,004


2.5


2,562


2.9

Pharmaceutical products …………………..


2,170


2,266


2,706


2,138


2.6


2,169


2.5

Optical, medical, photographic, scientific and technical instrumentation    


1,769


1,602


1,658


1,752


2.2


1,952


2.2

Plastics and articles thereof ………………..


1,543


1,674


1,716


1,736


2.2


1,937


2.2

Pearls, precious stones or metals, coins and jewelry ……………………………………..


1,061


723


1,333


1,826


2.3


1,937


2.2

Rubber and articles thereof     


599


671


743


822


1.0


1,388


1.6

Other goods    


20,894


21,787


22,751


23,125


28.6


24,416


27.8

Total    


$69,056


$77,273


$80,832


$80,818


100.0%


$87,573


100.0%
















Source: Institut de la statistique du Québec. 



Table 7

Selected Trade Indicators for Québec







2004

2005

2006

2007

2008



    (dollar amounts in millions)







Exports of Goods and Services

$139,802

$144,418

$149,651

$151,270

$154,601

  Exports to other countries

88,964

90,225

92,377

92,869

93,811

  Exports of goods to other countries

76,643

78,028

80,055

80,792

81,736

  Exports of services to other countries

12,321

12,197

12,322

12,077

12,075

  Exports to other provinces

50,838

54,193

57,274

58,401

60,790

  Exports of goods to other provinces

31,373

32,878

34,596

34,724

36,258

  Exports of services to other provinces

19,465

21,315

22,678

23,677

24,532







Ratio of Exports to Nominal GDP 

53.2%

53.3%

53.2%

51.0%

51.3%







Imports of Goods and Services

$144,026

$152,576

$158,191

$164,777

$178,413

  Imports from other countries

88,494

94,599

98,332

102,210

112,613

  Imports of goods from other countries

77,090

82,944

86,222

89,653

100,032

  Imports of services from other countries

11,404

11,655

12,110

12,557

12,581

  Imports from other provinces

55,532

57,977

59,859

62,567

65,800

  Imports of goods from other provinces

31,456

32,504

32,501

33,317

35,595

  Imports of services from other provinces

24,076

25,473

27,358

29,250

30,205







Source: Statistics Canada.







Labor Force. In 2008, the labor force was estimated at 4.2 million persons, an increase of 0.8% from 2007. The labor force participation rate for 2008 was estimated at 65.7% in Québec, compared with 67.8% in Canada. Total employment increased by 0.8% in 2008 in Québec, compared to a 1.5 % increase in Canada. The unemployment rate in Québec remained stable at 7.2% in 2008, compared with an increase from 6.0% to 6.1% in Canada for the same period.

 

Energy. Of the total energy consumed in Québec in 2006 (the most recent year for which information is available), energy derived from electricity accounted for 40.4 %, oil for 36.8 %, natural gas for 12.6 %, biomass for 9.4 % and coal for 0.9%.

Québec generates approximately one-third of all electricity produced in Canada and is one of the largest producers of hydroelectricity in the world. In 2008, more than 96% of all electricity produced in Québec was from hydroelectric installations. More than 44,000 megawatts ('MW') of hydroelectric capacity (including the capacity of independent producers and the firm capacity currently available from Churchill Falls (Labrador) Corporation Limited) have been or are in the process of being developed. Of the total electricity produced in Québec in 2008, 14.0% (based on sales volume) was exported to the United States and to other Canadian provinces, compared with 12.0% in 2007.


Free Trade Agreements

Canada is a member of the World Trade Organization ('WTO') and has also signed other trade agreements in order to promote commerce with economic partners. In 1989, the United States and Canada entered into a free trade agreement ('FTA'), which has led to the gradual elimination of tariffs on goods and services between the two countries and to the liberalization of trade in several sectors including the energy sector. The FTA provides for a binding binational review of domestic determinations in antidumping and countervailing duty cases and for binational arbitration of disputes between Canada and the United States as to either's compliance with the FTA or with the rules of the WTO. In 1994, Canada, the United States and Mexico signed a similar free trade agreement, the North American Free Trade Agreement ('NAFTA'), which resulted, with a few exceptions, in the gradual elimination by 2003 of tariffs on goods and services among Canada, the United States and Mexico. In April 1998, negotiations were undertaken between countries of the Americas (North, Central and South) to reach a new trade agreement by January 1, 2005 (Free Trade Area of the Americas or 'FTAA'). Although the January 1, 2005 deadline was not met, parties to the negotiations of the FTAA have reaffirmed their commitment to pursue such negotiations in the future. Canada has also entered into bilateral free trade agreements in 1997 with Chile and Israel, in 2000 with Costa Rica, in 2007 with the member states of the European Free Trade Association (Norway, Switzerland, Iceland and Liechtenstein) that will all become effective on July 1, 2009 and in 2008 with Peru and Columbia that are expected to become effective at a later date in 2009. 

Softwood Dispute.  In April 2001, a coalition of American lumber producers and various labor unions filed a petition with the U.S. Department of Commerce ('DoC') and the U.S. International Trade Commission ('ITC') alleging that softwood lumber imports from Canada were subsidized by the federal and provincial governments. As a result, in early 2002, the DoC and the ITC established countervailing duties ('CVD') and antidumping duties ('AD') on softwood lumber imports. The Government and the federal government have consistently denied these allegations, and the federal government and the Canadian lumber industry challenged the U.S. measures under NAFTA and WTO agreements. A NAFTA panel and a WTO panel have issued various rulings in connection with these challenges, to which DoC and ITC have responded. Over this period, the rates of CVD and AD have changed several times, and the combined rates have varied from 10.8% to 27.22%. On December 6, 2005, as a result of an administrative review, the combined rate dropped to 10.8%, representing a CVD rate of 8.7% and an AD rate of 2.1%. The U.S. government and Canada subsequently entered into a Softwood Lumber Agreement that came into effect on October 12, 2006 ('SLA'). 

Under the terms of the SLA, Canadian lumber exports from provinces covered by the dispute are subject to an export charge only (Option A) or an export charge plus volume restraint (Option B) if the prevailing monthly price of lumber (as defined in the SLA) drops below US$355 per thousand board feet. The total volume of permitted exports, which takes into account anticipated demand in the United States, is allocated to the concerned provinces. Provincial quotas are calculated on the basis of the share of lumber exports over the period from April 1, 2001 to December 31, 2005. 

Québec's choice of Option B involves:


Since July 2006, the reference price index (Random Lengths Framing Lumber Composite) has been below US$315.


The United States revoked retroactively AD and CVD duties for Softwood Lumber products from Canada as of May 22, 2002. Following the revocation, duties collected of US$ 5.6 billion were refunded to Canada. 


However, under a mechanism agreed in the SLA, US$1.0 billion was returned to the United States to be spent as follows:

- US$500 million to go to the members of the U.S. Coalition for Fair Lumber Imports;

- US$450 million to be spent in the United States on jointly agreed Canada-United States initiatives; and

- US$50 million will go to an initiative benefiting the North American lumber market.


Unless terminated by either party after two years, the SLA is to remain in force for 7 years and may be renewed for an additional 2 year period.



On March 30, 2007, the United States requested formal consultations under the dispute settlement mechanism of SLA. These consultations cover several matters including Canada's application of export charges and volume restraints as well as certain federal and provincial assistance programs to the lumber industry.


Following these consultations, in accordance with the dispute resolution mechanism of the SLA, the United States initiated arbitration proceedings in the London Court of International Arbitration ('LCIA') on August 13, 2007. The United States alleged Canada's breach of the SLA due to its failure to: (1) adequately calculate the export measures based on the adjusted expected U.S. consumption of lumber; and (2) impose the agreed-upon export measures beginning in January 2007. In addition, the United States alleged that Canada, through its provincial governments of Québec and Ontario, had breached the SLA by providing grants and other benefits that circumvent Canada's commitments under the SLA. In particular, Québec's Forest Management Measures program and $425 Million Forest Sector Financing Envelope were alleged to violate the SLA's anti-circumvention provision. On February 18, 2008, Canada denied that it violated any provisions of the SLA and stated that such financing envelope was part of Investment Québec's loan and loan guarantee programs used by all sectors of the Québec economy and had been in operation for over 20 years.

 

In its decision of March 3, 2008, the LCIA concluded that Canada did not breach the SLA with respect to the calculation of the export measures, but did breach the SLA by failing to impose such export measures as of January 1, 2007. The remedial phase relating to the March 3, 2008 decision ran from May 29, 2008 to a final remedy hearing on September 22-24, 2008. On February 23, 2009, following the remedy hearings, the LCIA issued its decision on the cure of the breach which requires Canada to collect additional 10% ad valorem export charge on softwood lumber shipments from the concerned regions for a total remedy amount of $68.26 million (including interest of $4.36 million). All other claims raised in the arbitration were dismissed. 


In response to this decision and taking into account the hearings on the breach, Canada tendered US$34 million plus interest to the United States on March 27, 2009 as a means of curing the breach. The United States did not accept Canada's tender. Instead, the United States has imposed a compensatory charge of 10% that went into effect on April 15, 2009. This charge will remain in effect until the United States has collected US$54.8 million. Anticipating the U.S. measures, on April 2, 2009, Canada filed a request for arbitration to the LCIA to decide on Canada's proposed remedy of the breach. According to the proposed timetable, the LCIA was expected to issue its decision on or prior to May 29, 2009. However, the LCIA has yet to render a decision and the arbitration hearing is set to continue in Washington on June 11 and 12, 2009.

 


   

Government Finances

Financial Administration

The Minister of Finance is responsible for the general administration of the Government's finances. The Financial Administration Act, the Balanced Budget Act and the Act to establish a budgetary surplus reserve fund govern the management of public monies of Québec and the Public Administration Act governs the management of financial, human, physical and information resources of the Administration.  

Since January 2007, the Minister of Finance also manages the Generations Fund. This fund was established in June 2006 pursuant to the Act to reduce the debt and establish the Generations Fund, in order to reduce the Government's debt burden.  

The Conseil exécutif issues Orders in Council that authorize the Minister of Finance to enter into financial contracts, including those related to borrowings by the Government. The Conseil du trésor determines the accounting policies.  

The accounts of the Government are kept on a modified accrual basis. The fiscal year of the Government ends March 31. The Auditor General is responsible for the auditing of the consolidated financial statements of the Government and reporting annually to the National Assembly. All revenues and monies over which the Parliament has power of appropriation form the Consolidated Revenue Fund of Québec. The Budget and appropriations from the Consolidated Revenue Fund and consolidated entities are published at the beginning of each fiscal year.  

In 2007, the Government undertook a major reform of its accounting policies in order to fully comply with Canadian generally accepted accounting principles (GAAP) applicable to the public sector. In this regard, the Government's reporting entity includes, as of April 1, 2006, the financial results of public health and social services institutions, school boards and CEGEPs (Collège d'enseignement général et professionnel), as well as the Université du Québec and its branches. Consolidated entities are thus presented in three separate groups: the non-budget-funded bodies and special funds, the health and social services and education networks, and the Generations Fund.

The accounts of the Consolidated Revenue Fund and the other entities included in the Government's reporting entity, with the exception of Government enterprises and organizations in the health and social services and education networks, are consolidated line by line in the financial statements. In the wake of a recommendation in the November 29, 2007 Report of the Task Force on Government Accounting, the Government analyzed the characteristics of Immobilière SHQ to determine if it still met the characteristics of a Government enterprise. On the basis of this analysis, the Government concluded that Immobilière SHQ no longer met these characteristics and that, because of this change in status, the accounts of the agency would have to be consolidated line by line. The impact of this change was recorded retroactively to previous years, with restatement into Public Accounts 2007-2008.

Transactions are classified as 'budgetary', 'non-budgetary' or 'financing':

With respect to the Consolidated Revenue Fund:

With respect to consolidated entities2:



The Balanced Budget Act is designed to ensure that over time and on a cumulative basis the Government maintains a balanced budget. Any sum that exceeds the budgetary balance or surplus objectives determined by the Act (an 'Overrun') by less than $1 billion in a fiscal year must be offset by the Government in the next fiscal year. If an Overrun exceeding $1 billion stems from any of the exceptional circumstances defined in the Act, the Government may exceed the deficit objective for more than one year, but must offset the Overrun over a maximum period of five years. If the Government achieves an accumulated surplus, it may then incur Overruns to the extent of that accumulated surplus. However, if the Government is operating under an offsetting financial plan, it must apply any surplus to offset any already recorded or anticipated Overruns.


Under the Act to establish a budgetary surplus reserve fund, a surplus may be appropriated to a budgetary reserve fund that may be used for capital projects or projects of defined duration or for other projects approved by the Government for a public interest purpose. The amounts paid into the reserve remain under full Government control.


The 2009-2010 Budget stipulated that the budget would be balanced in Fiscal 2009. A deficit of approximately $3.9 billion was expected for the following fiscal year.


However, due to the depth of the current recession which affects Québec as a result of the ongoing international financial crisis, the Government has determined that it would be unable to maintain a balanced budget for Fiscal 2010 and Fiscal 2011.


In order to support the economy, the Government determined that it needs to amend the Balance Budget Act with respect to Fiscal 2010 and Fiscal 2011, and in order to run a deficit to support employment during the current recession and to promote the return to economic growth. Otherwise, the Government would be obliged to substantially reduce its expenditures to compensate for lower revenues in Fiscal 2010. Given the extent of the economic difficulties, the Government therefore determined, as have most governments throughout the world, to support the economy at the cost of incurring deficits.As a result, the Government proposes to suspend the requirements of maintaining a balanced budget under the Balanced Budget Act retroactively to the date of the 2009-2010 Budget, for Fiscal 2010 and Fiscal 2011, so that it can ensure prudent management of its fiscal policy in this period of recession. 


On May 13, 2009, the Government tabled proposed legislation that would amend the Balance Budget Act to temporarily suspend the effect of certain of its provisions in order to authorize the Government to run budget deficits for Fiscal 2010 and Fiscal 2011, which deficits would not have to be offset by means of Overruns in subsequent years. The Balance Budget Act would be further amended to allow the Government to gradually eliminate its budget deficit once the economic recovery is under way. Additionally, the proposed legislation would implement a reform of the accounting practices of the Government that would provide for the full consolidation of financial information from bodies in the health and social services and educational networks with that of the Government.


The Government fully subscribes to the objectives of the Balanced Budget Act, which has applied to it since 1996. In its financial framework, the Government will implement the necessary measures so that, once the economic recovery is well under way, a balanced budget will be restored by 2013-2014.



The following table summarizes the consolidated financial transactions of the Government for the three years ended March 31, 2008, the preliminary results for Fiscal 2009 and the budget forecast for Fiscal 2010.

Table 8

Summary of Consolidated Financial Transactions (1)


Year ending March 31




2006



2007



2008



Preliminary Results 2009



Budget

Forecast 2010 (1)


(dollar amounts in millions)

Budgetary transactions of the Consolidated Revenue Fund 














    Own-source revenue    

    $45,743



    $49,651



    $49,464



    $48,555



    $47,371

    Federal transfers    

    9,969



    11,015



    13,629



    13,924



    14,841

    Total revenue    

    55,712



    60,666



    63,093



    62,479



    62,212















    Program spending     

    (49,229)



    (51,734)



    (54,826)



    (57,400)



    (59,989)

    Debt service    

    (6,875)



    (7,039)



    (7,021)



    (6,589)



    (6,104)

    Total expenditure    

    (56,104)



    (58,773)



    (61,847)



    (63,989)



    (66,093)

Net results of Consolidated Revenue Fund    

    (392)



    1,893



    1,246



    (1,510)



    (3,881)

Net results of consolidated entities     

    429



    100



    404



    205



    355

Surplus for the purposes of the public accounts    

    37



    1,993



    1,650



    (1,305)



    (3,526)

Deposits in the Generations Fund    

    -



    (584)



    (649)



    (701)



    (715)

Budgetary reserve (2)    

    -



    (1,300)



    (1,001)



    2,006



    295

Consolidated budgetary balance for the purposes of the

Balanced Budget Act     

    37



    109



    0



    0



    (3,946)

Deposit of dedicated revenues in the Generations

 Fund(3)    

    -



    584



    449



    569



    715

Consolidated budgetary balance    

    37



    693



    449



    569



    (3,231)















Consolidated non-budgetary transactions














    Investments, loans and advances    

    (1,182)



    (2,157)



    (2,410)



    (17)



    (1,345)

    Fixed assets    

    (1,166)



    (1,177)



    (1,457)



    (2,405)



    (3,304)

    Net investments in the networks    

    -



    (1,002)



    (487)



    (815)



    (1,004)

    Retirement plans    

    2,310



    2,559



    2,458



    2,300



    2,490

    Other accounts (4)    

    (208)



    (1,676)



    740



    242



    120

Consolidated non-budgetary requirements    

    (246)



    (3,453)



    (1,156)



    (695)



    (3,043)

Consolidated net financial requirements    

    $(209)



    $(2,760)



    $(707)



    $(126)



    $(6,274)















Consolidated financing transactions














    Change in cash position (5)    

    49



    (3,284)



    2,965



    (2,594)



    5,984

    Net borrowings  (6)    

    4,390



    11,076



    3,286



    8,364



    3,222

    Retirement plans' sinking fund (7)  and funds dedicated to employee's future benefits (8)    

    (4,230)



    (4,448)



    (4,895)



    (4,943)



    (2,217)

    Generations Fund (3)    

    -



    (584)



    (649)



    (701)



    (715)

Total consolidated financing transactions    

    $209



    $2,760



    $707



    $126



    $6,274
















(1)    The categories set forth reflect the presentation of the 2009-2010 Budget. The results for Fiscal 2006 have not been restated in accordance with the accounting reform implemented in Fiscal 2007. Under the 2006-2007 accounting reform, the health and social services and education networks were incorporated into the Government reporting entity and the Government's accounting policies have been changed to comply with Canadian generally accepted accounting principles (GAAP) applicable to the public sector. The impact of the accounting reform on the results for Fiscal 2008 was to reduce surplus for the purposes of the public accounts by $853 million. 

(2)    A negative amount indicates an allocation to the reserve and a positive amount, a use of the reserve.

(3)    The Generations Fund was created in June 2006 by the adoption of the Act to reduce the debt and establish the Generations Fund and is a separate entity from the Consolidated Revenue Fund. This law establishes the fund as a permanent tool for reducing the debt burden. In addition, it stipulates that the monies accumulated in the Generations Fund are dedicated exclusively to repaying the debt.

(4)    Reflects notably year-to-year changes in accounts payable and receivable, cash on hand and outstanding bank deposits and checks.

(5)    A positive number indicates a net decrease in cash.

(6)    Represents mainly new borrowings of $11,569 million, $17,262 million, $9,995 million, $14,877 million and $11,360 million for each of Fiscal 2006 through 2010, respectively, less repayment of borrowings. 

(7)    This sinking fund receives amounts to be used to cover retirement benefits payable by the Government under the public and parapublic sector retirement plans. (see 'Consolidated Non-Budgetary Transactions Relating to Retirement Plans').

(8)  These funds receive amounts used to cover employee's future benefits (accumulated sick leave and surviving spouse's pensions) payable to the Government's employees. 

 


2008-2009 Preliminary Results

Preliminary results for the Government's financial transactions in Fiscal 2009 indicate that a balanced budget was achieved. 

The revenue of the Consolidated Revenue Fund for Fiscal 2009 is expected to be $501 million lower than forecasted in the 2008-2009 Budget. Excluding Government enterprises, the downward adjustment to own-source revenue amounts to $471 million. This adjustment reflects mainly the lower-than-expected revenue from corporate taxes due essentially to the economic slowdown. The profits of Government enterprises were revised upward by $109 million, notably because of the additional profits of $363 million earned by Hydro-Québec, which were generated for the most part by growth in net sales of electricity outside Québec. This increase is offset by a $291-million decline in the profits of other Government enterprises compared with the forecast in the 2008-2009 Budget, of which $260 million is due to allowances for losses at the Société générale de financement du Québec. The $139 million decrease in federal transfers can be explained by two main factors: first, the value of the Québec special abatement was revised upward to reflect the most recent fiscal data; the value of the Québec special abatement (16.5% of basic federal personal income tax collected in Québec) reduces by an equivalent amount Québec's revenues from federal transfers; second, the population data of the 2006 census, which has been final since Fall 2008, reduced federal transfers to Québec for health, post-secondary education and other social programs, since these transfers are allocated among the provinces on a per capita basis. Expenditure of the Consolidated Revenue Fund was revised upward by $134 million compared with the forecasts of the 2008-2009 Budget. The level of program spending (expenditures excluding debt service) set for Fiscal 2009 was revised upward by $452 million. This rise is mainly attributable to increases of $115 million in the allowance for doubtful accounts, $100 million for the harmonization of the accounting method of capital expenditures of the health and education networks and $77 million for elections held in Québec in 2008. Debt service was revised downward by $318 million primarily because interest rates were lower than forecast.

The net results of non-budget-funded bodies and special funds show a deficit of $175 million, a decrease of $30 million compared with the results forecast in the 2008-2009 Budget.

The net results of the health and social services and education networks for Fiscal 2009 show a deficit of $189 million, a decrease of $39 million compared with the results forecast in the 2008-2009 Budget.

Deposits in the Generations Fund for Fiscal 2009, including the additional deposit of $132 million from the budgetary reserve, are expected to total $701 million, a decrease of $41 million compared with the results forecast in the 2008-2009 Budget.


2009-2010 Budget


With its 2009-2010 Budget, the Government intends to be active in order to limit the adverse effects of the recession on the Québec economy and facilitate its recovery.

The tabling of the 2009-2010 Budget is the Government's opportunity to use the fiscal tools at its disposal to achieve three goals:

1) to play a stabilizing role by supporting the economy and employment, in particular through substantial investment in infrastructure and by offering additional support to businesses to help them weather the recession, even at the cost of running deficits;

2) to prepare for economic recovery by implementing a bold plan to ensure sustainable and social development in Québec, to allow it to become a world leader in clean energy, green technology and the industries of the future in a new economic space ; and 

3) to implement a plan which seeks to attain a return to fiscal balance by 2013-2014.

Through these fiscal measures, the Government is confirming its firm intention to support citizens and businesses in order to weather the recession and ensure economic recovery, while aiming to soundly restore public finances.

Consequently, the Government expects a deficit of approximately $3,946 million and net financial requirements of $6,274 million in 2009-2010. Net financial requirements amount to $4,189 million for non-budget-funded bodies and special funds and $2,800 million for the Consolidated Revenue Fund, while net financial surpluses are budgeted at $715 million for the Generations Fund.  

In 2009-2010, total revenue of the Consolidated Revenue Fund is budgeted at $62,212 million, a decrease of 0.4% compared with the preliminary results for 2008-2009. Excluding Government enterprises, own-source revenue is budgeted at $42,612 million, a 2.8% decrease compared with 2008-2009 due to the impact of the economic recession and the additional costs associated with the fiscal measures announced in the 2009-2010 Budget and previous ones. The profits of Government enterprises are budgeted at $4,759 million, an increase of 0.5%. Nearly 76% of total revenue comes from own-source revenue. Federal transfers are expected to increase by 6.6 % ($14,841 million) in 2009-2010. 


The Government's expenditure is expected to total $66,093 million in Fiscal 2010, 3.3% higher than the preliminary results of Fiscal 2009. Program spending will increase by 4.5% to $59,989 million. The growth in program spending is allocated mainly to the health and social services sector and the education sector. The ratio of the Government's program spending to GDP is budgeted to be to 19.8% in 2009-2010. Consolidated Revenue Fund debt service is expected to decrease by 7.4% to $6,104 million due mainly to anticipated decline in interest rates. The portion of consolidated revenue allocated to total debt service is budgeted to represent 10.6% in 2009-2010, a decline from 13.3% in 2008-2009.

The consolidated entities are budgeted to provide net results of $355 million in 2009-2010, an increase of $150 million compared with net results recorded in 2008-2009, due particularly to a better financial situation of the health and social services and education networks.


The projections in the 2009-2010 Budget reflect the following assumptions regarding the economy of Québec for 2009.

Table 9

Economic Assumptions included in the 2009-2010 Budget for the Year 2009



Percentage Change 

over 2008

GDP:


    At current market prices    

-0.1%

    In chained 2002 dollars    

-1.2

Personal income    

1.1

Business non-residential capital expenditures (2002 prices)    

-8.4

International exports (2002 prices)     

-8.3

Consumer expenditures    

1.2

Labor force    

0.1

Employment    

-1.6






Average Rate

Unemployment rate     

8.9%




Source:     Ministère des Finances du Québec.

Note:     Economic assumptions, such as those included in the table above in this report and in all amendments to this report, are developed by Québec for and are a necessary part of the budget process. Actual results may differ materially from these assumptions.



Consolidated Revenue Fund Revenue 

The following table shows own-source revenue and federal transfers by source for the Consolidated Revenue Fund.


Table 10

Consolidated Revenue Fund Revenue


Year ending March 31




2006





2007




2008



Preliminary Results

2009



Budget

Forecast 2010




% of Total 2010 


(dollar amounts in millions)



Income and property taxes





        



        



        






    Personal income tax    

   $16,449



   $18,480



   $18,648



   $18,223



   $18,203



  29.3 %

    Contributions to the Health Services Fund    

    5,047



    5,053



    5,404



    5,576



    5,597



9.0

    Corporate taxes    

    4,786



    4,779



    4,819



    3,972



    3,266



5.2


    26,282



    28,312



    28,871



    27,771



    27,066



43.5

Consumption taxes

















    Retail sales    

    9,614



    9,873



    10,238



    10,796



    10,498



16.9

    Fuel    

    1,657



    1,678



    1,656



    1,629



    1,653



2.7

    Tobacco    

    752



    678



    647



    628



    593



0.9

    Alcoholic beverages    

    415



    422



    421



    439



    440



0.7


    12,438



    12,651



    12,962



    13,492



    13,184



21.2

Duties and permits

















    Motor vehicles    

    725



    741



    757



    753



    755



1.2

    Natural resources    

    210



    136



    86



    (61)



    (74)



 0.1

    Other    

    203



    179



    197



    188



    188



0.3


    1,138



    1,056



    1,040



    880



    869



1.4

Miscellaneous

















    Sales of goods and services    

    383



    396



    399



    401



    396



0.6

    Interest    

    463



    541



    562



    622



    588



1.0

    Fines, forfeitures and recoveries    

    485



    479



    605



    655



    509



0.8


    1,331



    1,416



    1,566



    1,678



    1,493



2.4

Revenue from Government enterprises (1)

















    Société des alcools du Québec    

    657



    710



    761



    797



    800



1.3

    Loto-Québec    

    1,537



    1,391



    1,360



    1,320



    1,295



2.1

    Hydro-Québec    

    2,323



    4,043



    2,926



    2,863



    2,700



4.3

    Other    

    37



    72



    (22)



    (246)



    (36)



 0.1


    4,554



    6,216



    5,025



    4,734



    4,759



7.6

Total own-source revenue     

    45,743



    49,651



    49,464



    48,555



    47,371



76.1

Federal transfers  

















    Equalization    

    4,798



    5,539



    7,160



    8,028



    8,355



13.4

    Health transfers    

    3,185



    3,649



    3,925



    3,741



    4,137



6.7

    Transfers for post-secondary education

    and other social programs    

    1,034



    1,070



    1,516



    1,267



    1,413



  2.3

    Other programs     

    952



    757



    1,028



    888



    936


 

1.5

Total federal transfers    

    9,969



    11,015



    13,629



    13,924



    14,841



23.9

Total revenue    

    $55,712



    $60,666



    $63,093



    $62,479



    $62,212



100.0%

























Taxes. The Government and the federal government share the power to levy personal income taxes in Québec. The Government levies and collects its own personal income tax at rates ranging from 16% to 24% in three brackets.

In Québec, businesses are subject to a tax on profits, a tax on capital and a tax on payroll. A tax rate of 11.9% is applied to the profits of corporations. Small and medium-size enterprises ('SME') are taxed at a reduced rate of 8% that, since the 2009-2010 Budget, applies on the first $500,000 of income from an eligible business. Previously, the eligible income threshold was $400,000.

The May 24, 2007 budget announced a plan for the elimination of the tax on capital for all companies as of January 1, 2011. The rate of the tax on capital is 0.24% for 2009 (0.36% in 2008) for all corporations, other than those in the manufacturing sector for which the tax on capital was eliminated on March 14, 2008. The rate will be reduced gradually on January 1 of each year. It will be 0.12% in 2010 and 0% as of 2011. The rate applicable to financial institutions is double the general rate and will be reduced in the same proportions. The basic exemption on paid-up capital applicable to SMEs remains at $1 million. A partial exemption applies for companies whose paid-up capital is greater than $1 million but less than $4 million. 

In addition to the various measures previously announced, Québec's corporate tax system provides incentives for the development of the new economy such as tax credits for scientific research and experimental development activities. Measures also exist to stimulate investment and improve productivity, like the 5% investment tax credit on manufacturing and processing equipment (the rate rises to 20%, 30% or 40% in the resource regions).

A payroll tax is applied to finance the Health Services Fund. The tax rate is 2.7% for payrolls of $1 million or less. The rate increases proportionally from 2.7% to 4.26% for payrolls between $1 million and $5 million. For payrolls of $5 million or more, the tax rate is 4.26%.

The Québec Sales Tax ('QST') is a multi-stage value-added tax that applies uniformly at each stage of the production and marketing of goods and services. A mechanism provides rebates of the tax paid on inputs at various stages of production in order to avoid double taxation. For large businesses, QST rebates are not allowed on energy (unless used to produce movable property), telecommunications, road vehicles, fuel and meals and entertainment. The QST rate is currently 7.5%. It was announced in the 2009-2010 budget that the QST rate will be raised to 8.5% as of January 1, 2011. 

On June 30, 2003, the Grand Chief of the Assembly of First Nations of Québec and Labrador filed a motion in Québec Superior Court for authorization to file a class action on behalf of all status Indians (except for James Bay Crees) who have paid Québec fuel tax since July 1, 1973 (the date on which this tax came into force) on purchases of fuel on a reserve in Québec. The Court authorized this class action in May 2007 but the class action has not been filed yet. Québec fuel tax legislation requires status Indians to pay the fuel tax embedded in the price of fuel at the pump but allows them to claim a rebate of the tax paid from the Québec Ministry of Revenue. The class action alleges that many status Indians failed to file a rebate claim for the fuel tax they paid and that the rebate system is not valid as the tax should not have been paid in the first place in view of the federal Indian Act, which exempts from taxes the property of a status Indian when it is located on a reserve. The amounts the class action could potentially involve have not yet been ascertained. The Grand Chief of the Assembly of First Nations of Québec and Labrador and the Minister responsible for Aboriginal Affairs have publicly indicated their preference for a negotiated settlement of this issue.

Federal Transfers. Equalization revenues amount to more than half of the federal transfers. Equalization is designed to enable provincial governments to offer reasonably comparable levels of public services without having to impose unduly high taxation. In its March 2007 budget, the federal government announced a thorough reform of the equalization program on the basis of the recommendations made by the Expert Panel on Equalization and Territorial Formula Financing. However, on November 3, 2008, the federal government announced the introduction of new caps on equalization. These caps place limits on the equalization entitlements of recipient provinces.

The federal government contributes to the financing of provincial health programs by means of the Canada Health Transfer ('CHT') and post-secondary education and other social programs by means of the Canada Social Transfer ('CST'). 

Since 2007-2008, the CST is allocated on a purely per capita basis. The prior formula, which has been replaced, took into account the value of the tax points transferred to the provinces in 1977. 

The federal government has undertaken to do the same thing for the CHT as of 2014-2015, once the health agreement signed by the First Ministers in September 2004 expires.

For Canada as a whole, the CHT is indexed by 6% per year while the CST is indexed by 3% per year.

Other federal transfers generally represent cost-sharing agreements for different provincial programs that relate to, among other things, the labor market, immigration and education.


Consolidated Revenue Fund Expenditure 

The following table shows program spending and debt service by mission for the Consolidated Revenue Fund.


Table 11

Consolidated Revenue Fund Expenditure 


Year ending March 31




2006





2007




2008



Preliminary Results 2009



Budget

Forecast 2010




% of Total 2010


(dollar amounts in millions)



Economy and Environment:

















    Transports    

    $1,776



    $1,953



    $2,148



    $2,347



    $2,771



4.2 %

    Affaires municipales, Régions et 

occupation du territoire    

    950



    999



    1,152



    1,128



    1,159



1.8

    Emploi et Solidarité sociale    

    803



    839



    875



    959



    935



1.4

    Développement économique, Innovation et Exportation    

    689



    519



    706



    833



    915



1.4

    Agriculture, Pêcheries et Alimentation    

    658



    694



    724



    711



    720



1.1

    Other    

    893



    950



    1,102



    1,038



    1,043



1.5


    5,769



    5,954



    6,707



    7,016



    7,543



11.4

Education and Culture:

















    Éducation, Loisir et Sport    

    11,567



    11,901



    12,559



    13,165



    13,639



20.6

    Teachers Pension Plan    

    714



    738



    840



    776



    792



1.2

    Culture, Communications et Condition féminine    

    536



    593



    623



    647



    656



1.0

    Other    

    115



    124



    131



    129



    296



0.5


    12,932



    13,356



    14,153



    14,717



    15,383



23.3

Health and Social Services:

















    Santé et Services sociaux (1)    

    15,817



    16,783



    17,931



    18,783



    19,649



29.7

    Régie de l'assurance maladie du Québec (2)    

    5,346



    5,670



    6,123



    6,634



    7,223



10.9


    21,163



    22,453



    24,054



    25,417



    26,872



40.6

Support for Individuals and Families:

















    Emploi et Solidarité sociale    

    3,234



    3,246



    3,294



    3,272



    3,293



5.0

    Famille et Aînés    

    1,604



    1,718



    1,836



    1,947



    2,066



3.1

    Other    

    232



    228



    238



    241



    242



0.4


    5,070



    5,192



    5,368



    5,460



    5,601



8.5

Administration and Justice:

















    Sécurité publique    

    942



    987



    1,054



    1,060



    1,082



1.6

    Revenu (3)    

    1,022



    1,090



    1,215



    1,080



    1,050



1.6

    Affaires municipales, Régions et 

occupation du territoire    

    802



    860



    669



    665



    668



1.0

    Justice    

    428



    507



    456



    441



    451



0.7

    Pension and insurance plans    

    300



    392



    323



    334



    338



0.5

    Other    

    801



    943



    827



    1,210



    1,247



1.9


    4,295



    4,779



    4,544



    4,790



    4,836



7.3


















Anticipated lapsed appropriations    

    -



    -



    -



    -



    (150)



(0.2)

Deferred appropriations in 2009-2010    

    -



    -



    -



    -



    (96)



(0.1)


    -



    -



    -



    -



    (246)



(0.3)

Total program spending    

    49,229



    51,734



    54,826



    57,400



    59,989



90.8


















Debt service:

















    Direct debt service    

    4,044



    4,357



    4,548



    4,421



    3,760



5.7

    Interest ascribed to the retirement plans    

    2,831



    2,682



    2,473



    2,168



    2,344



3.5

Total debt service    

    6,875



    7,039



    7,021



    6,589



    6,104



9.2


















Total expenditure    

    $56,104



    $58,773



    $61,847



    $63,989



    $66,093



100.0 %






















Economy and Environment. Spending should rise 7.5% for Fiscal 2010 compared to Fiscal 2009. The increase in spending is attributable mainly to an increase in funding for programs in the 'Transport' portfolio stemming, among other things, from the implementation of the Québec Infrastructure Plan for the repair of the road network. 

Program spending under the 'Transport' portfolio includes in particular the contribution to the funding of the Road Network Preservation and Improvement Fund, maintenance of transportation infrastructure and assistance for the acquisition of public transit capital assets.

The programs of the 'Municipal Affairs, Regions and Land Occupancy' portfolio include in particular expenditures relating to housing as well as those for upgrading infrastructure and urban renewal.

The programs regarding this mission also include funding for employment assistance measures, technical and financial support for economic development, research, innovation and export trade, development of bio-food companies, training and food quality as well as for financial risk management programs for farm enterprises. A substantial portion of the other programs concerns management of natural resources, protection and development of wildlife resources, protection of the environment and management of parks, promotion and development of tourism as well as international affairs.


Education and Culture. Spending is budgeted to increase by 4.5% for Fiscal 2010 compared to Fiscal 2009. This rise will ensure in particular that the quality of services is maintained, provide funding for the various growth factors of the education networks and for reinvestment for college and university education. Forecast spending for Fiscal 2009 includes $8,055 million for pre-school education and primary and secondary education and $4,465 million for higher education.


Health and Social Services. Spending is budgeted to increase by 5.7% for Fiscal 2010 compared to Fiscal 2009. The budget increase will be used to, among other things, fund pay adjustments of network personnel and health professionals as well as the growth in costs of prescription drugs under the prescription drug insurance plan.

Support for Individuals and Families. Spending is budgeted to increase by 2.6% for Fiscal 2010 compared to Fiscal 2009. Support programs include income security for low-income households, funding of daycare services for children and legal aid.


Administration and Justice. Spending is budgeted to increase by 1.0% for Fiscal 2010 compared to Fiscal 2009. These expenditures include civil protection and tax administration programs, as well as compensation in lieu of taxes paid to municipalities regarding the Government's buildings and those of the health and social services and the education networks as well as foreign governments.


Debt Repayment. Spending is budgeted to decrease by 7.4% for Fiscal 2010 compared to Fiscal 2009. Direct debt service and interest on the retirement plans account are the two largest components of this category. The expected decline is attributable mainly to lower interest rates.



Government Employees and Collective Unions  

In Fiscal 2010, budgeted expenditures for salaries and wages cover more than 414,000 full-time equivalent employees who are either civil servants or school or hospital employees (of which 6% are not subject to collective bargaining agreements). These budgeted expenditures amount to $32.8 billion in Fiscal 2010.

On December 15, 2005, the Act Concerning the Working Conditions in the Public Sector (the 'Act') was adopted by the Government. This Act sets forth the working conditions and salaries up to March 31st, 2010 for most of the Government employees whose collective bargaining agreements had lapsed or who were not covered by such an agreement. In accordance with the Government's budgetary framework, the Act implements the salary offers first tabled in June 2004, with a salary increase of 2% annually for Fiscal 2007 through Fiscal 2010. In January 2006, certain unions representing Government employees petitioned the courts to invalidate the Act. 

The next round of collective bargaining should begin in Fall 2009, with the unions tabling their demands regarding working conditions and salaries. 

As for the pay equity settlement of 2006, the Government has come to an agreement with the unions representing its civil servants and school or hospital employees, under which 360,000 employees received pay equity rectifications. The amounts were retroactive to November 21, 2001, with interest.

Bill 25 amending the Pay Equity Act, introduced on March 12, 2009, will ease pay equity maintenance going forward, with the assessment of pay equity being carried out every five years. The Bill should be adopted by the end of June 2009.



Consolidated Non-Budgetary Transactions

The following table shows the distribution of the consolidated non-budgetary transactions.

Table 12

Consolidated Non-Budgetary Transactions


Year ending March 31




2006





2007





2008



Preliminary Results 2009



Budget

Forecast 2010 


(dollar amounts in millions)

Investments, loans and advances














    Consolidated Revenue Fund














    Government enterprises














        Shares and investments    

    $27



    $(125)



    $ -



    $(260)



    $(635)

        Change in the equity value of investments (1)    

    (1,234)



    (1,774)



    (807)



    (365)



    (728)

        Loans and advances    

    (45)



    (42)



    (82)



    (49)



    (72)

    Total Government enterprises    

    (1,252)



    (1,941)



    (889)



    (674)



    (1,435)

    Investment with the Caisse de dépôt et placement du Québec (2)    

    -



    -



    (1,122)



    805



    295

    Other    

    (231)



    (18)



    1



    (2)



    21


    (1,483)



    (1,959)



    (2,010)



    129



    (1,119)

    Consolidated entities    

    301



    (198)



    (400)



    (146)



    (226)

Total investments, loans and advances     

   (1,182)



   (2,157)



   (2,410)



   (17)



   (1,345)

Fixed assets














    Consolidated Revenue Fund














        Net investments    

    (160)



    (188)



    (222)



    (382)



    (436)

        Depreciation    

    215



    225



    234



    255



    257


    55



    37



    12



    (127)



    (179)

    Consolidated entities………………………………

    (1,221)



    (1,214)



    (1,469)



    (2,278)



    (3,125)

Total fixed assets    

   (1,166)



   (1,177)



   (1,457)



   (2,405)



   (3,304)

Net investments in the networks














    Annual deficit    

    -



    219



    442



    189



    120

    Loans and advances to the networks    

    -



    (1,221)



    (929)



    (1,004)



    (1,124)

Total net investments in the networks    

   -



  (1,002)



  (487)



  (815)



  (1,004)

Retirement plans and other employee future benefits 














    Cost of vested benefits, amortizations and contributions(3)    

    1,766



    1,936



    2,049



    2,067



    2,040

    Interest on the actuarial obligation(4)    

    4,061



    4,157



    4,398



    4,365



    4,510

    Benefits, repayments and administrative expenses(5)    

    (3,517)



    (3,534) 



    (3,989) 



    (4,132)



    (4,060)

Total retirement plans and other employee future benefits    

   2,310



   2,559



   2,458



   2,300



   2,490

Other accounts














    Consolidated Revenue Fund    

   (364)



   (1,101)



  682



   (366)



   (406)

    Consolidated entities    

   156



  (575)



  58



  608



  526

Total other accounts    

   (208)



   (1,676)



  740



  242



  120

Total consolidated non-budgetary transactions    

   $(246)



   $(3,453)



   $(1,156)



   $(695)



   $(3,043)
















(5)   The retirement plans liability, excluding the retirement plans sinking fund estimated at $36.1 billion, is estimated at $62.2 billion for Fiscal 2009, consisting of $39.3 billion in respect of RREGOP and RRPE and $25.2 billion in respect of the other public sector plans. These liabilities are estimated in accordance with the method recommended by the Public Sector Accounting and Auditing Board of the Canadian Institute of Chartered Accountants ('CICA') regarding the accounting of public sector pension plans.


Investments, Loans and Advances. Investments, loans and advances represent capital contributions, loans or advances made to Government enterprises and agencies, municipalities, private corporations and individuals. Investments represent mainly equity transactions by the Government in its enterprises and also reflect the Government's share in profits and losses of enterprises in which the Government holds capital stock. Loans and advances are repayable to the Government, although not all repayment schedules have been set (see 'Government Enterprises and Agencies').

Fixed Assets. The Government records fixed assets and depreciates them over their useful life. Fixed assets consist of acquisitions and dispositions and the cost of depreciation of the recorded value of these fixed assets. 

Retirement Plans. Retirement plans include transactions relating to the public sector retirement plans administered by the Government. The Government and Public Employees Retirement Plan (Régime de retraite des employés du gouvernement et des organismes publics or 'RREGOP') was established by the Government in 1973 for civil servants, teachers and employees in health and social services who opted to join the plan and all those who were hired after June 30, 1973.  The Pension Plan for Management Personnel (Régime de retraite du personnel d'encadrement or 'RRPE') covers management and comparable personnel since January 1, 2001.  Until then, those employees had participated in the RREGOP. RREGOP and RRPE cover 521,550 employees and other plans cover 9,951 employees as of December 31, 2007. 

The Government accounts for its contributions (including those for current services and interest on the actuarial obligation for the plans) as a budgetary expenditure. This expenditure takes the form of provisions and is not generally a cash expenditure in the year. Accordingly, the impact of these contributions is to increase the budgetary deficit without affecting net financial requirements, since they are offset by an equal amount in non-budgetary transactions. The portion of benefits and other payments that are the responsibility of the Government are a claim on, and are payable out of, the Consolidated Revenue Fund.  

In Fiscal 1994, the Government created the retirement plans sinking fund ('RPSF') managed by the Caisse de dépôt et placement du Québec, which consists of a cash reserve that may eventually be used for paying the retirement benefits of public sector employees. In December 1999, the Government announced that it would accelerate its deposits to the RPSF to ensure that by 2020 the sums accumulated in this fund would be equal to 70% of the Government's actuarial obligations, as shown in the Public accounts, through that date with respect to the retirement plans of public sector employees.

On December 19, 2001, several associations of executives participating in public and parapublic retirement plans filed a motion for a declaratory judgement asking the Québec Superior Court to declare that (i) the Government, in its financial statements, does not acknowledge the totality of its financial obligations as an employer pursuant to the Act respecting the Government and Public Employees Retirement Plan, (ii) the Government, in its financial statements, does not correctly record the amount of its financial commitments regarding the share of the cost of the RREGOP and that of the Pension Plan of Peace Officers in Correctional Services (Régime de retraite des agents de la paix en services correctionnels or 'RRAPSC'), and (iii) the Government's share of the cost in the funding of these plans creates a financial obligation for the Government as an employer, the value of which corresponds to the fund the Government would have accumulated had it paid its contributions since 1973 on the same basis used to determine the participants' fund. On May 14, 2004, the petitioners amended this motion to withdraw the first two issues described above, retaining only the last issue.  

On July 15, 2004, the Québec Superior Court rendered its decision on the motion for declaratory judgment concluding that (i) the Government adequately disclosed its financial commitments in accordance with the Guidelines of the Canadian Institute of Chartered Accountants regarding the share of the cost of the RREGOP, the RRPE and the RRAPSC, and (ii) the Government does not have an obligation, arising from the share of the cost of funding these plans, to apply the same actuarial basis as the one used to fund the participants' pension account. The Court further concluded that, from the evidence adduced at bar, the pension patrimony of each participant did not suffer, at any time, any harm from the use of another actuarial basis. On August 13, 2004, the plaintiffs filed an appeal with the Québec Court of Appeal.

On April 7, 2006, various union organizations representing participants in the RREGOP filed a motion for a declaratory judgement with the Québec Superior Court to determine that (i) the RREGOP fund is constituted of the participants' payroll contributions and contributions by the Government, (ii) the RREGOP fund constitutes a patrimony distinct from the Government, and (iii) the Government has a commitment in regards to the sharing of the cost of the RREGOP whose value corresponds to the fund it would have constituted had it paid its contributions since 1973 on the same bases as those used to determine the participants' funds.

The appeal filed on August 13, 2004, regarding the first above-mentioned motion, will not be heard until the decision on the motion filed on April 7, 2006 is rendered. No decision has been rendered with respect to the April 2006 motion as of yet. The Court is now expected to hear the motion in Spring 2010.





 Other AccountsThe transactions related to other non-budgetary accounts reflect, notably, year-to-year changes in accounts payable and receivable, cash on hand and outstanding bank deposits and checks. These accounts normally fluctuate according to the overall volume of financial transactions. They may be subject to significant variations from year to year, however, since they depend on the coordination of collection and disbursement transactions.



Table 13

Québec's Financial Assets and Liabilities


Fiscal year ending March 31


2007

2008



(dollar amounts in millions)


Financial Assets (1)

$ 47,856 

$ 49,016 


Liabilities (2)

$ 172,153

$ 173,334


Government Guaranteed Debt (3)

$ 32,674

$ 32,399

(1)    Financial assets include short-term investments, accounts receivable, inventories intended for sales, investment in Government enterprises, long-term investments, the Generations Fund and deferred expenses related to debts. Short-term investments, which include Treasury bills, notes, deposit certificates, banker's acceptances, bonds, commercial paper and other similar instruments amounted to, as at March 31, 2008, $3.159 billion compared to $6.136 billion as at March 31, 2007.

(2)   Liabilities are comprised of bank overdraft, accounts payable and accrued expenses, deferred revenue, transfers from the federal government to be repaid, pension plans and other future social benefits, direct debt, debt to finance the health and social services and education networks and debt to finance the work of municipal bodies.

(3)     See 'Public Sector Debt - Guaranteed Debt' .




Government Enterprises and Agencies

Government enterprises and agencies can be divided into three categories: enterprises included in the Government's reporting entity, agencies whose reporting entity is included in the Government's reporting entity and agencies which conduct fiduciary transactions that are not included in the Government's reporting entity.

Most of the enterprises included in the Government's reporting entity are stock companies that are owned exclusively by the Government and operate on a commercial basis. The Government may guarantee the debt of some of these enterprises. Some of them pay dividends to the Government. Société des alcools du Québec and Loto-Québec transfer as dividends all of their net earnings to the Government. In previous years, Hydro-Québec generally paid as dividends approximately 50% of its net income. In the 2008-2009 Budget Speech, the Government changed the dividend payment policy so that henceforth, Hydro-Québec pays as dividends approximately 75% of its net income calculated in accordance with the provisions of the Hydro-Québec Act.

Agencies whose reporting entity is included in the Government's reporting entity are budgetary corporations whose expenditures are funded in part or in whole through funds appropriated by the National Assembly. These enterprises may benefit from loans and advances from the Government. The debt service of some of these corporations may be guaranteed in part by the Government.

Agencies that conduct fiduciary transactions play an important economic role in Québec. As an investment manager, Caisse de dépôt et placement du Québec invests funds on behalf of public retirement plans, insurance plans and other public enterprises.

The Government emphasizes the strategic role of its enterprises and agencies by initiating investment projects that are profitable and creating jobs in partnership with the private sector.

The Government manages an extensive portfolio of assets through Government enterprises. Those assets may be sold to the private sector when the timing is deemed appropriate.

Table 14

Major Enterprises and Agencies



Area of Activity

Enterprises included in the Government's reporting entity



Hydro-Québec    


Energy production and distribution

Loto-Québec    


Gaming

Société des alcools du Québec ('SAQ')    


Wholesale and retail sale of alcoholic beverages

Société générale de financement du Québec ('SGF')    


Economic development (Industrial sector)

Sociétés Innovatech (Grand Montréal, Québec et Chaudière-Appalaches, Sud du Québec, Régions ressources)    



Venture Capital (High technology sector)

Agencies whose reporting entity is included in the Government's reporting entity



Corporation d'hébergement du Québec ('CHQ')    


Construction, development and management of health care buildings

Financement-Québec    


Financing public sector organizations

Immobilière-SHQ    


Development and management of public housing

Investissement Québec    



Economic development (SME-high technology and SME-industrial sectors)

Société immobilière du Québec ('SIQ')    


Construction, development and management of public buildings

Société québécoise d'assainissement des eaux ('SQAE')    


Water purification

Agencies which conduct fiduciary transactions that are not included in the Government's reporting entity



Caisse de dépôt et placement du Québec ('Caisse')    


Investment management

Commission administrative des régimes de retraite et d'assurances ('CARRA')    



Public sector pension funds management

Régie des rentes du Québec ('RRQ')    


Pension funds management


The following table shows total Government investment in and guaranteed debt of certain Government enterprises as well as certain financial information as of the latest fiscal year for which this information is publicly available.


Table 15

Financial Information on Certain Government Enterprises and Agencies Included in the Government's Reporting Entity(1)





Share Capital




Loans and Advances (2)



Accumulated Surplus (Deficit) (3)



Total Government Investment (4)


Debt Guaranteed by the Government





Assets





Revenue



Net

Income

   (Loss) (5)




















(dollar amounts in millions)


















Enterprises included in the Government's reporting entity:































    Hydro-Québec (12-31-2008)    


4,374


-


17,688


22,062


34,881


66,774


12,717


3,141

    Loto-Québec (03-31-2008)    


-


-


134


134


-


  1,105


  3,850


  1,436

    SAQ (03-29-2008)    


30


-


13


43


-


593


2,294


761

    SGF (12-31-2008)    


2,173


-


(704)


1,469


-


1,996


1,092


(261)




















$6,577




$17,131


$23,708


$34,881


$70,468


$19,953


$5,077


















Agencies whose reporting entity is included in the Government's reporting entity:    

















CHQ (03-31-2008)(6)


$32




172


204


-


4,411


318


18

    Financement-Québec (03-31-2008)(6)


10


605


84


699


12,555


14,616


11


10

    Immobilière-SHQ (12-31-2007)(6)    


14


-


59


73


-


2,030


199


11

    Investissement Québec (03-31-2008)     


33


-


516


549


  2,664


 5,119


210


37

    SIQ (03-31-2008)    


87




97


184


208


1,902


627


4

SQAE (03-31-2008)    


-


-


-


-


50


2,527


140


-



$176


$605


$928


$1,708


$15,477


$30,605


$1,505


$80

Total


$6,753


$605


$18,059


$25,417


$50,358


$101,073


$21,458


$5,157



















(1)    All financial information is as of the fiscal year-end indicated for each enterprise or for the fiscal year then ended.

(2)    Does not include loans from the Financing Fund. (The Financing Fund offers financing services only to consolidated organizations and other Government enterprises.)

(3)    Includes accumulated other comprehensive income.

(4)    Total Government Investment is the sum of Share Capital, Loans and Advances and Accumulated Surplus (Deficit). (See discussion of individual enterprises below).

(5)    In the case of agencies whose reporting entity is included in the Government's reporting entity, Net Income (Loss) figures include, as revenue, financial assistance from the Government for operating purposes.

(6)    The recent accounting reform first altered the status of five governmental corporations (CHQ, Financement-Québec, Société de développement de la Baie-James, Société des établissements de plein air du Québec and Société de l'assurance automobile du Québec). They were joined by Immobilière SHQ whose results were adjusted retroactively in the Government's books for Fiscal 2007. These corporations are no longer recorded at equity value as enterprises of the Government, but rather are considered governmental organizations, and their results are consolidated line-by-line.


Enterprises Included in the Government's Reporting Entity

Hydro-QuébecHydro-Québec operates one of the two largest systems in Canada for the generation and distribution of electric power. Hydro-Québec supplies virtually all electric power distributed in Québec.

Under the provisions of the Hydro-Québec Act, Hydro-Québec is mandated to supply power and to pursue endeavors in energy-related research and promotion, energy conversion and conservation, and any field connected with or related to power or energy. Under the Hydro-Québec Act, the Government is entitled to declare a dividend from Hydro-Québec when certain financial criteria are met. The Government received a dividend of $2.252 billion from Hydro-Québec in Fiscal 2008, compared with $2.095 billion in Fiscal 2007. 

As of December 31, 2008, Hydro-Québec operates 59 hydroelectric plants with a combined installed capacity of 34,118 MW, 27 thermal plants totaling 1,634 MW, one nuclear plant with a capacity of 675 MW and one wind farm with a capacity of 2 MW. Hydro-Québec also has access to 4,765 MW of the output from the Churchill Falls (Labrador) Corporation Limited generating station (5,428 MW). In 2008, Hydro-Québec purchased all the output from eight privately-owned wind farms with a total installed capacity of 530 MW and 1,277 MW are available under agreements with other independent suppliers. Hydro-Québec maintains more than 20,500 miles of transmission lines.

Table 16

Hydro-Québec's Operations



Year ended December 31



2004


2005


2006


2007


2008



(dollars in millions)

Total electricity sales (terawatthours)    


        180.3


        184.5


        181.8


        192.8


        191.7

Total revenue from electricity sales    


    $    10,006


    $    10,585


    $    10,551


    $    11,985


    $    12,364

Revenue from electricity sales outside Québec    


    $    1,084


    $    1,464


    $    1,149


    $    1,617


    $    1,919

Capital investments affecting cash (1)    


    $    3,112


    $    3,384


    $    3,497


    $    3,636


    $    3,992

Net income    


    $    2,435


    $    2,252


    $    3,741


    $    2,907


    $    3,141

Interest coverage (2)    


        1.79


        2.00


        2.06


        2.13


        2.12

Capitalization ratio (3)    


        32.7%


        34.1%


        36.1%


        37.5%


        37.7%

Debt guaranteed by Government (at end of period)    


    $    31,784


    $    32,413


    $    33,798


    $    33,402


    $34,881    

(1)    Including Energy Efficiency Programs.

(2)    Sum of operating income and net investment income divided by gross interest expense.

(3)    Equity divided by the sum of equity, long-term debt, perpetual debt, short-term borrowings, current portion of long-term debt and derivative instrument liabilities, less derivative instrument assets.

The Act respecting the Régie de l'énergie (the 'Energy Board Act'), enacted in 1996, grants the Régie de l'énergie (the 'Energy Board') exclusive authority to determine or modify Hydro-Québec's rates and conditions under which electricity is transmitted and distributed by Hydro-Québec. Under this legislation, rates are set by reasoned decision of three commissioners after public hearings. Moreover, the Energy Board Act stipulates that rates are determined on a basis that allows for recovery of the cost of service plus a reasonable return on the rate base. The Energy Board consists of seven full-time members appointed by the Government and, in the exercise of its functions, is charged with reconciling the public interest, consumer protection and the fair treatment of the electric power carrier and of distributors. The Energy Board Act was amended in December 2006 to grant the Energy Board new powers regarding energy efficiency programs and actions as well as mandatory reliability standards.

Under the Energy Board Act, Hydro-Québec has been granted exclusive rights for the distribution of electric power throughout Québec, excluding the territories served by distributors operating a municipal or private electric system as of May 13, 1997. The Energy Board has the authority to: fix, or modify, after holding public hearings, Hydro-Québec's rates and conditions for the transmission and distribution of electric power; approve its electric power supply plan; designate a reliability coordinator for Québec and adopt the standards of reliability proposed by the designated reliability coordinator; authorize its transmission and distribution investment projects; approve its distribution commercial programs; and, rule upon complaints from customers concerning rates or service.

Hydro-Québec's 2006-2010 Strategic Plan sets forth three main priorities: (i) energy efficiency; (ii) complementary development of hydroelectric and wind power, the two main renewable energy sources in Québec; and (iii) technological innovation. More specifically, Hydro-Québec plans: (a) to promote conservation of energy by investing in energy saving programs; (b) to increase its hydroelectric generating capacity by accelerating project development and by creating a portfolio of projects with a total generating capacity of 4,500 MW; (c) the complementary development of its hydroelectric capacity and of up to 4,000 MW of wind power by 2015; (d) to increase, with technological innovations, the productivity of its generating facilities, reduce losses on its transmission and distribution systems and make buildings more energy-efficient; and (e) the development of innovative energy efficiency technologies. 


On December 30, 2003, representatives of the Innus of Takuikan Uashat Mak Mani-Utenam instituted an action against the Attorney-General of Canada, the Attorney-General of Québec and Hydro-Québec seeking judicial recognition of their aboriginal rights and of their unextinguished Indian title over certain areas of land in Québec. Plaintiffs, who claim not to be parties to the JBNQA, allege that the JBNQA and certain federal and provincial laws are illegal, inoperative, unconstitutional and not binding upon the plaintiffs. The plaintiffs seek various orders, including rendering of accounts and revenue sharing for the unlawful use and management of the lands, notably in respect of hydroelectric facilities on these lands, and awarding damages from Canada, Québec and Hydro-Québec, jointly and severally, in an amount of up to $1.5 billion (subject to further increase by the plaintiffs). In June 2005, as requested by the parties, the Québec Superior Court suspended the legal action for five years. However on January 27, 2009, at the request of the Attorney-General of Canada, the suspension of the proceedings was lifted and the case has been reactivated. Québec and Hydro-Québec intend to contest this claim (see 'Native Peoples').

In November 2006, the Innus of Pessamit re-activated an action that was filed in 1998 against the Attorney-General of Canada, the Attorney-General of Québec and Hydro-Québec seeking judicial recognition of their aboriginal rights and title over certain areas of land in Québec where Hydro-Québec's Manicouagan-Outardes hydroelectric facilities are located. The Innus intend to seek various orders including an award of damages against Canada, Québec and Hydro-Québec, jointly and severally, in an amount of $10.8 billion. In addition, the Innus of Pessamit are claiming compensatory annual payments of $657 million from Hydro-Québec. Québec and Hydro-Québec intend to contest this claim (see 'Native Peoples'). 


Loto-Québec. Loto-Québec operates and administers lottery systems and gaming facilities, including casinos, a video lottery network and on-line products in the bingo industry. Its lottery products are sold at more than 8,680 points of sale. Loto-Québec currently operates three Government-owned casinos in Montréal, Charlevoix and Gatineau and expects to open its new casino in Mont-Tremblant on June 24th 2009. Its video lottery network is comprised of video lottery terminals located in approximately 2,325 establishments. Loto-Québec pays all of its net earnings to the Government as dividends after payment of specified-purpose accounts amounting to $76 million for Fiscal 2008. The 2009-2010 Budget anticipates dividends from Loto-Québec of $1,320 million for Fiscal 2009 and $1,295 million for Fiscal 2010 compared with $1,361 million received in Fiscal 2008. 

On August 2, 2002, a class action was instituted against Loto-Québec in the Québec Superior Court on behalf of people who, since 1993, claim to have become compulsive players using the video poker terminals operated by Loto-Québec in public locations. This class action alleges that Loto-Québec bears some responsibility for these people becoming compulsive players and seeks damages from Loto-Québec in an amount of approximately $700 million. The trial began in September 2008. Loto-Québec is defending itself vigorously against this class-action suit.

Société des alcools du Québec ('SAQ'). The SAQ sells alcoholic beverages and pays all of its net earnings to the Government as a dividend. As part of the 2009-2010 Budget, the SAQ is budgeted to pay dividends of $797 million in Fiscal 2009 and $800 million in Fiscal 2010 compared with $762 million in Fiscal 2008.

Société générale de financement du Québec ('SGF'). SGF is a holding company that has interests in industrial and commercial enterprises. Its mission is to carry out, working with private partners and under normal profitability conditions, projects that will contribute to promote Québec's overall economic development. The SGF invests, in the form of capital stock, in commercially viable companies to support their growth plan. The corporation focuses its operations in the agri-food, mining, materials, energy, environment, forest products, life sciences and information and communications technology sectors.The SGF contributes to the development of companies in Québec and also helps foreign partners wishing to carry out a project here.

In 2008, the SGF was affected by the difficult economic situation and recorded a net loss of $261 million. Of that amount, approximately $238 million is attributable to operating losses, shutdown costs and write-offs of investments in the petrochemical companies Pétromont and PTT Poly Canada, as well as Temlam, a forest products company. This is SGF's first loss following three fiscal years of profits.

In addition to new investments, the SGF remains involved with its partners affected by the economic crisis. In January 2009, the Government announced a $1 billion subscription over two years to SGF capital, with the mandate to help companies with a good outlook for development to get through the financial crisis. As part of this special mandate, the SGF was authorized to go beyond its traditional role of equity investor and offer additional solutions such as loans, debentures or investments in preferred stock.

In its 2009-2010 Budget, the Government announced the creation of an emergency $500-million business recovery fund. This fund also will be managed jointly by the SGF and the Fonds de solidarité FTQ and will provide support for medium and large companies that are affected by the economic situation and have pressing needs for cash resources.


Société nationale de l'amiante ('SNA')SNA ceased operations in Fiscal 1993.

In 1982, the SNA acquired shares issued from the share capital of Mines SNA inc. ('Mines SNA'), which held a majority interest in Asbestos Corporation Limited (ACL). Following such subscription, SNA gained control of Mines SNA. The minority shareholders of ACL instituted a class action for damages against the Government and SNA, in Québec and in Ontario. In Québec, the class action was dismissed in 1990 with the ruling handed down by the Court of Appeal of Québec and the Supreme Court ruling the same year that dismissed the motion for leave to appeal. On August 1, 2008, the Court of Appeal for Ontario dismissed the minority shareholders' appeal. The decision of the Court of Appeal of Ontario is final since it was not appealed before the Supreme Court within the prescribed deadline.

Claims pertaining to a follow-up offer were also filed with the Québec and Ontario securities commissions. In May 2005, the Court of Québec upheld the decision of the Autorité des marchés financiers, which had rejected the claim. This decision is now final since it was not appealed before the Supreme Court within the prescribed deadline.

In June 2001, the Supreme Court of Canada upheld the decision of the Ontario Securities Commission to deny the rectifications demanded. This decision is now final.

In September 1992, Mines SNA sold all of its ACL shares, and SNA transferred all of ACL's debt owed to it, to Société Minière Mazarin ('Mazarin'). In June 1995, the minority shareholders of ACL filed a motion with the Québec Superior Court requesting that the court, as a remedy to the alleged oppression resulting from this sale and transfer to Mazarin, impose an arrangement whereby ACL would purchase all the shares sold by Mines SNA and the debt transferred to Mazarin for the same amount, and under the same payment conditions as agreed to among SNA, Mines SNA and Mazarin. The hearing for the motion has been suspended by the court since February 1996 until final judgment is rendered in the proceedings before both the Québec and the Ontario securities commissions. No date is presently set for the hearing of the motion. 

Sociétés Innovatech. There are four Innovatech corporations (Innovatech du Grand Montréal, Innovatech Régions ressources, Innovatech du sud du Québec and Innovatech Québec et Chaudière-Appalaches). They are venture capital corporations that fund technology innovations at the start-up or technical research stage in their respective territories. As at March 31, 2008, the total assets of the four Innovatech corporations amounted to $95 million. 

On April 6, 2004, the Government announced that these corporations would be restructured. The Government intended to use the assets of these corporations to attract private capital. To do so, it intended to privatize Innovatech du Grand Montréal and convert the three others into mixed public-private capital corporations.

On March 17, 2005, the Government sold the investment portfolio of Innovatech du Grand Montréal to a subsidiary of Coller Capital, which undertook to honor the corporation's commitments and invest in local technology companies. 

In July 2005, the Government entered into a limited partnership contract with Capital régional et coopératif Desjardins concerning Innovatech Régions ressources. A new limited partnership, Desjardins-Innovatech L.P. ('Desjardins-Innovatech'), was formed. This entity was then 53% held by Capital régional et coopératif Desjardins and 47% by the Government. Desjardins Capital de risque Inc. manages Desjardins-Innovatech. The Government's share corresponded to the value of the Innovatech Régions ressources' portfolio that was transferred to Desjardins-Innovatech. The agreement with Capital régional et coopératif Desjardins has led to the injection of $30 million of new capital.

In 2006, the Government and Capital régional et coopératif Desjardins agreed to broaden the mission of Desjardins-Innovatech and the main limited partner, Capital régional et coopératif Desjardins, reinvested $20 million. The limited partnership's share at that time was as follows: 34% for the Government and 66% for Capital régional et coopératif Desjardins.

In October 2008, the Government announced the transfer of assets worth $10 million from the Société Innovatech du sud du Québec to Desjardins-Innovatech. The agreement stipulates the creation of a portfolio restricted to the territory currently served by the Société Innovatech du sud du Québec and a venture capital investment of $20 million in the portfolio by Desjardins-Innovatech.

Since the initial agreement contracted in July 2005 was changed, the new agreement also stipulates the possibility that the Government may request Capital régional et coopératif Desjardins to invest an additional $10 million in 2010 in Desjardins-Innovatech L.P. depending on the corporation's needs.

As for Innovatech Québec et Chaudière-Appalaches, the Government is still working to convert it into a mixed public-private capital corporation.

 

Agencies Whose Reporting Entity Is Included in the Government's Reporting Entity

Corporation d'hébergement du Québec ('CHQ'). CHQ provides financing for capital investments in the health and social services network. CHQ coordinates and controls the construction projects of the network's buildings. As of March 31, 2008, CHQ had total assets of $ 4.4 billion, including $1.9 billion in real estate. 

Financement-Québec. Financement-Québec, a separate financing authority, was created in 1999 to offer financial services, including loans for educational institutions and health and social services establishments. In addition, municipal and other organizations designated by the Government may also be eligible for such financing. The financing is repaid with subsidies that these organizations receive from the Government.

As of March 31, 2009, preliminary funded debt for borrowings of Financement-Québec on financial markets in its own name, with the guarantee of the Government, amounted to $13,215 million, at nominal value.

Immobilière-SHQ. The mission of this corporation is to contribute to the development of social housing in Québec. Its stock of property is made available to housing boards or non-profit organizations that also receive financial assistance from the Société d'habitation du Québec for their operation. Immobilière-SHQ is authorized to finance its capital requirements in the capital markets under federal government loan insurance programs. As of December 31, 2007, Immobilière-SHQ had total assets of $2.0 billion, including $389 million in mortgages and $1.6 billion in real estate.

Investissement QuébecThis Government enterprise participates in the financing of investments in Québec. As of March 31, 2008, outstanding loans and guarantees under Investissement Québec's various programs totaled $2.5 billion. Investissement Québec had $205 million in budgetary funding available for Fiscal 2009 to stimulate private investment in Québec.

In the 2004-2005 Budget Speech, the Government announced the creation of the Regional Economic Intervention Fund ('FIER') to support the creation of regional investment funds, in particular by matching funds invested by the private sector. The Government's initial investment of $210 million was increased on two occasions; it rose to $288 million for Fiscal 2006, and was increased by another $30 million to $318 million for Fiscal 2007. In addition, the 2007-2008 Budget announced the implementation of a 'FIER-Premières nations' in which the Government will invest up to $15 million. Negociations are currently underway. The Government expects to succeed in the implementation of the 'FIER-Premières nations'.

In the 2009-2010 Budget, the Government announced a $60-million additional funding to FIER-Régions. The Government's total participation in the FIER program will thus amount to $393 million. This fund is administered by Investissement Québec.

Announced as part of the Update on Québec's Economic and Financial Situation in Fall 2008, the Renfort program is designed to help successful businesses to deal with tighter credit conditions. To be eligible to such program, businesses need: - to have been in operation for at least three years; - to have generated positive funds for at least two of the last three years; the total of the funds generated over the last three years must be positive; - to demonstrate that liquidity problems are temporary and profit outlook is good; - to carry out its main activities in Québec. Under the program, $1 billion will be injected for business financing by means of loan guarantees or loans. As part of the program, Investissement Québec can guarantee loans for a maximum total value of $750 million or make loans directly for a maximum aggregate value of $250 million. The 2009-2010 Budget added $200 million to the Renfort program's funding.


Société immobilière du Québec ('SIQ'). SIQ owns and maintains most Government buildings. Subsequent to the severe rainstorms that led to flooding of the Saguenay region in July 1996, a number of legal actions, including class actions, were launched against SIQ and the Government. All such actions were contested and two class actions, one entered on behalf of residents of the Chicoutimi-Jonquière region and the other on behalf of lakeside residents of Lac Kénogami, were settled, reducing the total initial exposure resulting from such claims from $120 million to approximately $70 million. SIQ and the Government intend to fully contest all of these actions. As at December 4, 2002, SIQ transferred all the dams it owned to the Government. The Government will assume all damages and costs that might arise from theses claims. As of March 31, 2008, SIQ had total assets of $1.9 billion. 

Société québécoise d'assainissement des eaux ('SQAE')The SQAE historically provided municipalities with management and financing services for water purification and sewage treatment projects. It also carried out studies on waterworks and sewer systems. The SQAE's revenues consisted of fees charged in relation to the costs of the projects and studies. The SQAE was authorized to fund only projects over which it exercises control. Today, the SQAE's activities are focused on managing its debt service and closing, within the allocated budgets, the remaining active projects as part of the Government's water treatment program. A municipality assumes an average of 14% of the total cost of a project, funded over 20 years, and the Government covers the rest. The SQAE is authorized to fund these capital requirements on municipal water treatment projects representing investments of $3.8 billion. As at March 31, 2008, total commitments relating to the repayment of the principal of the debt amounted to $2.5 billion. 

On December 14, 2006, amendments were made to the Act respecting the Société québécoise d'assainissement des eaux to transfer the administration of the SQAE's affairs to a person designated by the Minister of Municipal Affairs, Regions and Land Occupancy. 


Agencies Which Conduct Fiduciary Transactions That Are Not Included ithe Government's Reporting Entity

Caisse de dépôt et placement du Québec ('Caisse'). The Caisse invests the funds entrusted to it by several public pension plans, insurance plans and various public bodies. As of December 31, 2008, the net assets of the Caisse (at market value) totaled $120.1 billion. The main depositors and their respective assets on deposit (at market value) were as follows: CARRA, $40.5 billion; RRQ, $26.2 billion; Retirement Plan Sinking Fund, $26.1 billion; Commission de la construction du Québec, $9.9 billion; Commission de la santé et sécurité du travail, $7.8 billion; and SAAQ, $5.8 billion.

The Caisse's overall return is the average weighted return on the funds of all its depositors. Individual returns for the depositors varied from -26.9% to -17.1%, depending on their specific asset allocations. The overall return for the year ended December 31, 2008 was of -25.0%. The overall average return of the Caisse over the past 5 years was 3.1%.

As stated by law, the mission of the Caisse is to receive monies on deposit as provided by law and manage them with a view to achieving optimal return within the framework of depositors' investment policies while at the same time contributing to Québec's economic development. The Caisse invests its depositors' funds in various asset classes, including fixed income, equities, hedge funds, commodity financial instruments, private equity, infrastructures, real estate and real estate debt. The Caisse is permitted, subject to certain exceptions, to invest in up to 30% of the common shares of any corporation or invest up to 5% of its total assets in shares of any corporation. 

As of December 31, 2008, the Caisse's investments were distributed as follows: 34.9% in bonds, 25.1% in equity and convertible securities, 20.9% in deposits and short-term investments and 19.0% in real estate holdings and mortgages. Investments by the Caisse in bonds of the Government of Canada, of the Québec's public sector, other Canadian provinces, municipalities and other Canadian bodies totaled $41.6 billion (at market value), including third party and bank-sponsored asset backed commercial paper ('ABCP'). As at December 31, 2008, the Caisse held investments in Canadian ABCP, including 'Third-party ABCP' that has been restructured under the restructuring agreement of the Pan-Canadian Investors Committee, and that is accounted for at fair market value, totaling $7.2 billion.  

On March 13, 2009, the Caisse announced the appointment of a new President and Chief Executive Officer. In accordance with the Caisse's constituing statute, the appointment was made by the Board of Directors and ratified by the Government. The Caisse's constituting statutes establish the mission and governance rules, particularly the composition and functioning of the board of directors and the criteria for selecting its members. In this regard, at least two-thirds of the members of the board of directors, including the chair, must meet the requirements of an independent director.


The Caisse's constituting statutes provide for the creation of three committees by the board of directors - an audit committee, a governance and ethics committee and a human resources committee -and defines the role of each. It also establishes that the offices of chair of the board and president and chief executive officer are to be two separate functions. It requires that the Caisse adopt an investment policy for each specialized portfolio it holds and provides rules of ethics for the Caisse, its officers and employees, and its wholly-owned subsidiaries. 

Commission administrative des régimes de retraite et d'assurances ('CARRA'). CARRA administers RREGOP and RRPE, the Teachers Pension Plan, the Civil Service Superannuation Plan and other public sector retirement plans. As of December 31, 2008, assets in these plans, deposited with the Caisse, are estimated at $40.5 billion (at market value).  

Régie des rentes du Québec ('RRQ').  RRQ administers the Régime de rentes du Québec, a universal pension plan (the 'Québec Pension Plan'). The cost of the plan, including all administrative costs, is covered by contributions from employers, employees and self-employed individuals.  As of December 31, 2008, RRQ entrusted $26.2 billion of funds to the Caisse (at market value).  The contribution rate for the Québec Pension Plan was set at 9.9% for 2003 and subsequent years.  The contribution rate of the Québec Pension Plan is the same as the one established for the Canada Pension Plan.

 

Public Sector Debt

Public sector debt includes debt incurred and guaranteed by the Government and debt of public institutions under Government jurisdiction, including local administrations. Public sector debt consists of funded and unfunded debt. Unfunded debt includes indebtedness for a maturity of one year or less.

The following table shows information on the funded debt, net of sinking fund balances, of the Québec public sector which includes the funded debt of the Government (including the debt of consolidated organizations), debt guaranteed by the Government, debt of the municipal sector and debt of other institutions as of the dates indicated. In a number of these instances, notably that of Hydro-Québec, debt service is provided by operating revenues and other internally generated sources rather than from taxes. As of March 31, 2008 and March 31, 2009, funded debt of the public sector, net of sinking fund balances, was estimated to amount to $163.9 billion and $181.5 billion, respectively, of which 6.6% and 6.3% was held by the Caisse.


Table 17

Funded Debt of Public Sector (net of sinking fund balances)



As of March 31





Unadjusted

2005(1)



Unadjusted

2006(1)




2007




2008


Preliminary

Results

2009




(dollar amounts in millions)(2)


Government Funded Debt











    Borrowings - Government    

    $77,923


    $81,995


    $109,714


    $112,586


    $124,837


    Borrowings - to finance Government Enterprises    

    3,234


    2,646


    31


    25


    224


    Borrowings - to finance Municipal Bodies (3)    

    2,799


    2,604








Government Guaranteed Debt (4)    

    40,600


    41,947


    32,674


    32,399


    36,668


Municipal Sector Debt    

    14,239

    14,150

    15,669

    14,150

    16,409


    17,321


    18,639

    

Other Institutions    

    4,696


    4,040


    2,023


    1,552


    1,088


Public Sector Funded Debt (5)    

    $143,491


    $148,901


    $160,851


    $163,883


    $181,456


Per capita ($)    

    $19,041


    $19,639


    $21,076


    $21,322


    $23,411


As a percentage of (6)











    GDP    

    54.6%


    54.9%


    57.1%


    55.2%


    60.2%


    Personal income     

    65.8%


    65.9%


    68.1%


    65.5%


    70.1%














(1)    The figures for Fiscal 2005 and Fiscal 2006 have not been restated in accordance with the accounting reform implemented in Fiscal 2007, which resulted in the consolidation of additional entities into the Government reporting entity (see 'Financial Administration').

(2)    Canadian dollar equivalent at the dates indicated for loans in foreign currencies after taking into account currency swap agreements and foreign exchange forward contracts. 

(3)    Following the accounting reform implemented in Fiscal 2007, the Borrowings - to finance Municipal Bodies are reclassified in the Borrowings - Government.

(4)    Represents mainly the debt of Hydro-Québec.

(5)    Includes debt covered by the Government's commitments (see 'Government's Commitments').

(6)    Percentages are based upon the prior calendar year's GDP and Personal income.


Government Debt

Government debt consists of funded and unfunded debt. Unfunded debt includes indebtedness with a maturity of one year or less. As of March 31, 2008, unfunded debt of the Government was $7.3 billion consisting of Treasury Bills for $3.3 billion plus $4.0 billion representing the excess of short-term liabilities over short-term assets. On March 31, 2009, unfunded debt of the Government was estimated, on a preliminary basis, at $0.5 billion consisting of Treasury Bills for $3.3 billion minus $2.8 billion representing the excess of short-term assets over short-term liabilities.

Table 18

Government Funded Debt 


As of March 31




Unadjusted

2005(1)




Unadjusted

2006(1)





2007





2008



Preliminary

Results

2009


Average Interest Rate

2009


Average Term to Maturity 2009


(dollar amounts in millions)(2)


(%)


(years)

Borrowings - Government












Payable in Canadian Dollars:














    Debentures and Other Loans    

    $65,457


    $70,987


    $99,826


$100,549


    $112,126


4.4


11.4

    Savings Products     

    4,290


    4,580


    4,879


    5,290


    5,895


4.5


-

Payable in Foreign Currencies:














    United States Dollars    

    2,696


    1,853


    1,075


    2,081


    2,657


9.7


13.1

    Japanese Yen    

    4,470


    2,849


    2,082


    2,341


    2,350


6.0


6.6

    Swiss Francs    

    4,492


    5,622


    3,104


    3,518


    3,197


1.5


7.0

    Pounds Sterling    

    (3)


    (2)


    (2)


    (2)


    (1)


-


6.7

    Euros    

    -


    (22)


    3,144


    3,450


    3,638


2.7


8.3

Funded Debt    

    81,402


    85,867


    114,108


    117,227


    129,862





Less: Sinking Funds (3)    

    3,479


    3,872


    4,394


    4,641


    5,025





Net Borrowings - Government (4)    

    $77,923


    $81,995


    $109,714


    $112,586


    $124,837


4.4


10.8















Borrowings - to finance Government Enterprises    














Payable in Canadian Dollars:














    Debentures and Other Loans    

    3,234


    2,646


    31


    25


    224


3.8


4.6

Borrowings - to finance Government Enterprises (2)


    $3,234



    $2,646



    $31



    $25



    $224



3.8


4.6















Borrowings - to finance Municipal Bodies (5)














Payable in Canadian Dollars:














    Debentures and Other Loans    

    2,799


    2,604


    


    







Borrowings - to finance Municipal Bodies (2)

    $2,799


    $2,604


    


    





















(1)    The figures for Fiscal 2005 and Fiscal 2006 have not been restated in accordance with the accounting reform implemented in Fiscal 2007, which resulted in the consolidation of additional entities into the Government reporting entity (see 'Financial Administration').

 (2)    Canadian dollar equivalent at the dates indicated for loans in foreign currencies after taking into account currency swap agreements and foreign exchange forward contracts. 

(3)    Consists of funds withdrawn annually from the Consolidated Revenue Fund and consolidated organizations. Foreign securities held in sinking funds are valued at the Canadian dollar equivalent at the dates indicated.

(4)    Subsequent to March 31, 2009, the Government has issued or agreed to issue debentures and other funded indebtedness which total approximately $6.4 billion. The Government currently has credit agreements with various banks and financial institutions for a total of US$3.5 billion.

(5)    Following the accounting reform implemented in Fiscal 2007, the Borrowings - to finance Municipal Bodies are reclassified in the Borrowings-Government.


The following table shows the maturities of the Government's funded debt outstanding as of March 31, 2009, net of a sinking fund balance of $5,025 million ($4,641 million as of March 31, 2008) valued at exchange rates at that date. It also takes into account future required contributions to sinking funds for all outstanding loans and debentures. 


Table 19  

Maturities of Government Funded Debt for Borrowings - Government

Fiscal Year Payable

Canadian Dollars



U.S. Dollars


Japanese Yen


Swiss Francs


Pounds Sterling



Euros


Total

2008-2009


Total

2007-2008


(dollar amounts in millions)(1)





Year 1    

$13,293


$25


-


-


-


-


$13,318


$5,552

Year 2    

6,785


23


51


-


-


-


6,859


8,171

Year 3    

9,581


25


209


-


-


(3)


9,812


5,752

Year 4    

7,571


25


-


-


-


(4)


7,592


11,464

Year 5    

9,644


64


125


-


-


-


9,833


4,999

1 - 5 years    

46,874


162


385


-


-


(7)


47,414


35,938

6 - 10 years    

33,870


1,474


1,965


3,197


(1)


3,645


44,150


41,898

11 - 15 years    

5,385


(688)


-


-


-


-


4,697


4,966

16 - 20 years    

4,816


394


-


-


-


-


5,210


7,325

21 - 25 years    

7,550


309


-


-


-


-


7,859


8,996

26 - 59 years    

15,306


201


-


-


-


-


15,507


13,463


$113,801 


$1,852


$2,350


$3,197


$(1)


$3,638


$124,837


$112,586

















(1)    Amounts denominated in foreign currencies are shown at the Canadian dollar equivalent at March 31, 2009, after taking into account currency swap agreements and foreign exchange forward contracts, including unrealized currency losses of $607 million which will be amortized over the remaining term of this debt.

The information relating to debt retirement set out above includes amounts to be withdrawn annually from the Consolidated Revenue Fund for the creation of sinking funds for the redemption of debentures of the Government in connection with contractual obligations incurred in certain debt issues. On March 31, 2008, the amount set aside for sinking fund purposes was $142 million and, at that date, the aggregate value of sinking funds was $4,641 million, of which $4,016 million was invested in debentures issued or guaranteed by the Government. For the year ended March 31, 2009, the amount set aside for sinking fund purposes was $141 million and, at that date, the aggregate value of sinking funds was $5,025 million, of which $4,119 million was invested in debentures issued or guaranteed by the Government.


Table 20

Maturities of Government Funded Debt for Borrowings - to finance Government Enterprises 


Fiscal Year Payable


Canadian Dollars



Total 2008-2009



Total 2007-2008


(dollar amounts in millions)(1)

Year 1    


    -


    -


    $4

Year 2    


    75


    75


    3

Year 3    


    1


    1


    3

Year 4    


    1


    1


    3

Year 5    


    7


    7


    4

1 - 5 years    


    84


    84


    17

6 - 10 years    


    139


    139


    8

11 - 15 years    


    1


    1


    -

16 - 20 years    


    -


    -


    -

21 - 25 years    


    -


    -


    -

26 - 30 years    


    -


    -


    -



    $224


    $224


    $25








 (1)    After taking into account currency swap agreements and foreign exchange forward contracts.



Guaranteed Debt

The following table summarizes funded debt guaranteed by the Government (net of sinking fund balances).


Table 21

Guaranteed Funded Debt (net of sinking fund balances)  


As of March 31




Unadjusted

2005(1)




Unadjusted

2006(1)





2007





2008



Preliminary

Results

2009


Average Interest Rate

2009


Average Term to Maturity 2009


(dollar amounts in millions)(2)


(%)


(years)

Hydro-Québec    

    $33,032


    $32,367


    $32,674


    $32,399


    $36,668


6.8


19.7

Financement-Québec    

    7,564


    9,579











Commission municipale du Québec    

    4


    1












    $40,600


    $41,947


    $32,674


    $32,399


    $36,668



















(1)    The figures for Fiscal 2005 and Fiscal 2006 have not been restated in accordance with the accounting reform implemented in Fiscal 2007, which resulted in the consolidation of additional entities into the Government reporting entity (see 'Financial Administration').

 (2)    Canadian dollar equivalent at dates indicated for loans in foreign currencies issues after taking into account currency exchange agreements and foreign exchange forward contracts.


As of March 31, 2009, unfunded debt guaranteed by the Government, on a preliminary basis, amounted to $3,470 million, including $3,228 million borrowed from financial institutions under a student loan program and $242 million of short-term debt of Hydro-Québec. 


Funded Debt of the Municipal Sector and Other Institutions

The funded debt of the Québec public sector also includes indebtedness of public institutions under the Government's jurisdiction. These institutions include the municipal sector (municipal corporations, urban communities and transportation commissions), educational institutions (school corporations, universities and colleges), health and social services establishments and other Government enterprises (Government agencies, boards and commissions).

The following table shows information on the funded debt of these institutions, net of debt held or guaranteed by the Government, as of the dates indicated.


Table 22

Funded Debt of the Municipal Sector and Other Institutions


As of March 31



Unadjusted

2005(1)



Unadjusted

2006(1)




2007




2008


Preliminary

Results

2009


(dollar amounts in millions)(2)

Municipal Sector    

    $14,239


    $15,669


    $16,409


    $17,321


    $18,639

Educational Institutions    

    2,724


    2,300


    1,873


    1,411


    935

Other Government Enterprises    

    1,742


    1,571







Health and Social Services Establishments    

    230


    169


    150


    141


    153


    $18,935


    $19,709


    $18,432


    $18,873


    $19,727











(1)    The figures for Fiscal 2005 and Fiscal 2006 have not been restated in accordance with the accounting reform implemented in Fiscal 2007, which resulted in the consolidation of additional entities into the Government reporting entity (see 'Financial Administration').

 (2)    Canadian dollar equivalent at the dates indicated for loans in foreign currencies after taking into account currency exchange agreements and foreign exchange forward contracts. The amounts shown do not include loans from borrowings made by the Government on behalf of these entities.


The funded debt of these institutions consists mainly of the funded debt of the municipal sector which benefits from a large degree of autonomy since approximately 95% of the total revenue is derived from local sources. The relative magnitude of capital investment and borrowing by local governments in Québec is attributable, to a large extent, to the responsibilities assumed by Québec municipal corporations with respect to major projects related to the development of new residential and industrial areas. Approximately one-third of the debt of municipal corporations and urban communities has been incurred for these projects which in several other parts of Canada are financed directly by the private sector. The Ministère des Affaires municipales et des Régions et de l'Occupation du territoire supervises and controls the borrowings of all Québec municipal corporations and urban communities.

In 2007 (the most recent year for which information is available), local sector expenditure including school corporations totaled $24.8 billion, representing 28.2% of consolidated expenditure of the Québec public sector. The net accumulated surplus from current operations of Québec municipal corporations, including reserves, increased from $1,296.3 million in 2006 to $1,660.0 million in 2007. Net long-term debt of the municipal sector supported by local taxpayers increased from $13.4 billion as of December 31, 2006 to $14.0 billion as of December 31, 2007. This debt, as a percentage of real estate valuation, decreased from 2.8% in 2006 to 2.7% in 2007. 


Government's Commitments

The following table shows information on the Government's commitments for the repayment of the principal on borrowings made for capital expenditures by the educational institutions and health and social services establishments as well as by the municipal sector. The amounts for Fiscal 2009 are not yet publicly available.


Table 23

Government's Commitments (1)



As of March 31 




Unadjusted

2005(2)


Unadjusted

2006(2)



2007



2008




(dollar amounts in millions)(3)

Educational Institutions    


    $8,845


    $9,408


    $1,934


    $1,987


Health and Social Services Establishments    


    4,165


    4,411


    


    


Municipal Sector    


    2,786


    2,874


    2,791


    2,726


Others Beneficiaries    


    711


    872


    1,128


    1,323




    $16,507


    $17,565


    $5,853


    $6,036












(1)    Including commitments to repay loans from borrowings made by the Government on behalf of these entities.

    The debt covered by these commitments is included in the Funded Debt of Public Sector (see 'Funded Debt of Public Sector').

(2)    The figures for Fiscal 2005 and Fiscal 2006 have not been restated in accordance with the accounting reform implemented in Fiscal 2007, which resulted in the consolidation of additional entities into the Government reporting entity (see 'Financial Administration').

(3)    Canadian dollar equivalent at the dates indicated for loans in foreign currencies after taking into account currency swap agreements and foreign exchange forward contracts.




Where You Can Find More Information

This document appears as an exhibit to the annual report of Québec on Form 18-K for the fiscal year ended March 31, 2009 filed with the U.S. Securities and Exchange Commission (the 'Commission') on EDGAR through the Commission Internet web site at http://www.sec.gov. Additional information with respect to Québec is available in the annual report or in other exhibits or amendments to the annual report. You may read and copy any document Québec files with the Commission at the Commission's public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Commission's toll free number at 1-800-SEC-0330 if you need further information about the operation of the Commission's public reference room. In addition, you may request a copy of these filings at no cost from Ministère des Finances du Québec, Direction du financement des organismes publics et documentation financière, 12 rue Saint-Louis, Québec, Québec, G1R 5L3, Canada. This document is also available on the Ministère des Finances du Québec Internet web site at http://www.finances.gouv.qc.ca. This web site is an inactive textual reference only and any information available on this web site shall not be deemed to form a part of this document or the annual report to which it appears as an exhibit.




Forward-Looking Statements

Various statements made throughout this document are forward looking and contain information about financial results. The words 'forecast', 'preliminary estimate', 'preliminary results' and similar expressions identify forward-looking statements. You are cautioned that any such forward-looking statements are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. You are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this document. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.


Supplementary Information  

The following tables indicate present or future characteristics of the funded debt of Borrowings-Government outstanding as of March 31, 2009. Previous characteristics are not indicated.

Table 24

Borrowings-Government outstanding as of March 31, 2009

Maturity Date


Issue Date(1)


Interest Payment Date(s)


Coupon

(%)


Canadian Dollars


CUSIP Number 



Nominal Value


Book Value


or ISIN Code


References


Maturity Date


Issue Date(1)


Interest Payment Date(s)


Coupon

(%)


Canadian Dollars


CUSIP Number 



Nominal Value


Book Value


or ISIN Code


References


A)     Payable in Canadian Dollars


2009-04-01


1988-01-07


04-01 & 10-01


11.00



    1,377,800,000



1,377,800,000


CA748148KG74


SFP (1):1989-04-01

2009-06-01


1999-01-15


06-01 & 12-01


5.50



    2,498,000,000



2,496,065,050


CA748148QP10



2010-06-28


1989-06-28


06-28 & 12-28


10.00



    570,000,000



573,012,600


CA748148KK86


SFP (1):1990-06-28

2010-12-01


2000-08-01


06-01 & 12-01


6.25



    2,631,100,000



2,637,640,041


CA748148QU05



2011-03-28


1991-03-28


03-28 & 09-28


10.75



    75,000,000



74,915,872


CA748148NR03


SFP (1):1992-03-28

2011-09-02


1986-09-02


03-02 & 09-02


9.50



    439,700,000



444,116,986


CA748148KC60


SFP (2):1997-09-02

2012-02-10


1987-02-10


02-10 & 08-10


9.00



    179,300,000



180,159,134


CA748148KE27


SFP (1):1988-02-10

2012-06-04


1987-06-04


06-04 & 12-04


10.50



    200,000,000



199,550,721


CA748148LQ48



2012-10-01


2002-04-08


04-01 & 10-01


6.00



    2,121,500,000



2,135,883,878


CA748148BG75



2012-10-09


1987-10-09


04-09 & 10-09


11.875



    100,000,000



99,972,072


CA748148MJ95



2013-10-01


2003-07-21


04-01 & 10-01


5.25



    2,152,000,000



2,168,692,498


CA748148RK14



2013-12-01


2003-01-15


06-01 & 12-01


3.30



    784,580,309



785,734,649


CA748148RH84


Real Return Bonds. Yields linked to the CPI for Canada.

2014-06-01


1989-06-01


06-01 & 12-01


10.50



    125,000,000



124,688,544


CA748148KJ14


SFP (1):1990-06-01

2014-12-01


2004-08-03


06-01 & 12-01


5.50



    2,500,000,000



2,561,679,868


CA748148RN52



2015-07-27


1990-07-27


01-27 & 07-27


11.00



    50,000,000



49,783,666


CA748148KN26


SFP (1):1991-07-27

2015-12-01


2005-06-03


06-01 & 12-01


5.00



    2,500,000,000



2,572,096,146


CA748148RP01



2021-12-01


2001-02-13


06-01 & 12-01


4.50



    697,856,476



808,241,597


CA748148QY2


Real Return Bonds. Yields linked to the CPI for Canada.

2023-01-16


1993-03-04


01-16 & 07-16


9.375



    2,202,200,000



2,271,574,825


CA748148NX70


SFP (1):1994-01-16

2023-03-30


1992-12-29


03-30 & 09-30


9.50



    375,000,000



373,025,012


CA748148PA59



2026-04-01


1996-07-19


04-01 & 10-01


8.50



    2,176,100,000



2,383,365,396


CA748148PZ01


SFP (1):1997-04-01

2026-12-01


1998-02-27


06-01 & 12-01


4.50



    1,084,341,921



1,135,951,217


CA748148QG11


Real Return Bonds. Yields linked to the CPI for Canada.

2029-10-01


1998-05-01


04-01 & 10-01


6.00



    2,737,300,000



2,674,129,227


CA748148QJ59


SFP (1):1999-10-01

2031-12-01


2001-02-13


06-01 & 12-01


4.25



    1,117,749,575



1,388,353,232


CA748148QZ9


Real Return Bonds. Yields linked to the CPI for Canada.

2031-12-01


2002-11-13


06-01 & 12-01


3.441



    63,897,881



63,897,136


CA748148RF29


Real Return Bonds. Yields linked to the CPI for Canada.

2032-06-01


2000-06-27


06-01 & 12-01


6.25



    4,200,200,000



4,140,257,280


CA748148QT3



2036-12-01


2003-07-28


06-01 & 12-01


5.75



    4,082,900,000



4,228,241,432


CA748148RL9




Medium-Term Notes

2009-04-01


1995-02-24


04-01 & 10-01


14.00



    20,000,000



20,000,000


CA74814ZAM55



2009-04-01


1998-06-12


04-01 & 10-01


5.55



    50,000,000



50,000,000


CA74814ZBU62



2009-04-01


1998-06-18


04-01 & 10-01


5.45



    65,000,000



65,000,000


CA74814ZBX02



2009-04-01


1998-06-19


04-01 & 10-01


5.55



    76,000,000



76,000,000


CA74814ZBW29



2009-04-01


2004-10-01


04-01 & 10-01


3.50



    668,000



668,000


CA74814ZDB63



2009-08-17


2004-02-17


08-17 & 02-17


3.149



    56,941,505



56,941,505


CA74814ZCZ41



2010-06-01


2000-06-01


06-01 & 12-01


6.75



    25,000,000



25,012,183


CA74814ZCH4



2010-07-09


2003-07-09


07-09


4.25



    500,000,000



499,572,744


XS0171362089



2011-04-01


2003-09-16


04-01 & 10-01


4.80



    90,000,000



90,803,999


CA74814ZCY75


Exchangeable option on April 1, 2011 for Note maturing April 1, 2026 (6.40%) subject to prior notice from March 3, 2011 to March 11, 2011.

2011-04-28


2004-04-28


04-28


4.50



    200,000,000



199,545,650


XS0190878081



2011-05-16


2006-02-21


05-16 & 08-16 & 11-16 & 02-16 


Floating



    1,200,000,000



1,200,000,000


CA74814ZDD20



2011-08-06


2004-08-06


08-06 & 11-06 & 02-06 & 05-06


Floating



    1,300,000,000



1,300,423,808


CA74814ZDA80


CDOR (3 months) + 0.075%

2013-02-04


2005-02-04


02-04


4.375



    400,000,000



398,601,033


XS0211709844



2013-12-10


2006-12-21


03-10 & 06-10 & 09-10 & 12-10


Floating



    1,282,000,000



1,282,303,081


CA74814ZDQ33


CAD-BA (3 months) - 0.01%

2014-05-10


2004-05-10


02-10 & 05-10 & 08-10 & 11-10


Floating



    250,000,000



250,000,000


XS0192344280


CAD-BA (3 months) + 0.085%

2014-06-03


2004-07-26


06-03


5.125



    250,000,000



248,077,098


XS0197261935



2014-06-30


2004-12-06


12-30 & 03-30 & 06-30 & 09-30


Floating



    250,000,000



250,000,000


XS0207384487


CAD-BA (3 months) + 0.12%

2014-07-16


1995-09-05


01-16 & 07-16


9.05



    10,000,000



9,993,151


CA74814ZAY93



2015-05-18


2005-05-18


05-18


4.65



    100,000,000



99,843,655


XS0219854659



2015-06-30


1995-04-03


06-30 & 12-30


9.65



    4,664,000



4,684,122


CA74814ZAP86



2016-06-30


1995-04-03


06-30 & 12-30


9.65



    7,739,000



7,776,505


CA74814ZAQ69



2016-10-11


2006-10-11


10-11 & 01-11 & 04-11 & 07-11


Floating



    200,000,000



200,000,000


XS0270863060


CAD-BA (3 months) + 0.03%

2016-12-01


2006-01-30


06-01 & 12-01


4.50



    3,000,000,000



2,964,806,086 


CA74814ZDH34



2017-05-14


2006-12-14


02-14 & 05-14 & 08-14 & 11-14


Floating



    200,000,000



200,000,000


XS0279291172


CAD-BA (3 months) + 0.07%

2017-06-30


1995-04-03


06-30 & 12-30


9.65



    7,744,000



7,785,356


CA74814ZAR43



2017-12-01


2007-01-29


06-01 & 12-01


4.50



    4,000,000,000



3,925,996,273


CA74814ZDR16



2018-12-01


2008-01-22


06-01 & 12-01


4.50



    3,500,000,000



3,467,429,453


CA74814ZDU45



2020-12-01


2004-12-07


06-01 & 12-01


5.00



    100,000,000



98,625,538


CA74814ZDC47



2023-03-30


1995-08-09


03-30 & 09-30


9.50



    194,500,000



197,029,261


CA74814ZAX11



2025-06-01


2004-12-08


06-01 & 12-01


5.35



    652,000,000



675,547,154


CA74814ZDE03



2026-04-01


2002-06-25


04-01 & 10-01


7.50



    165,850,000



165,850,000


CA74814ZDS98



2026-04-01


1996-12-27


04-01 & 10-01


8.50



    100,000,000



105,891,759


CA74814ZBH51


SFP (1): 1997-04-01

2026-04-01


1999-01-12


04-01 & 10-01


8.50



    90,000,000



110,013,578


CA74814ZCA9



2026-04-01


2003-07-22


04-01 & 10-01


5.50



    74,332,000



73,601,409


CA74814ZCX9



2028-01-01


2008-06-20


04-01 & 07-01 & 10-01 & 01-01


1.797



    528,193,586



528,193,586


CA74814ZDV28


Real return medium-term notes. Yields linked to the CPI for Canada

2028-04-01


1999-02-19


04-01 & 10-01


6.10



    5,000,000



5,000,000


CA74814ZCD3



2035-04-01


1995-04-13


04-01 & 10-01


-



    100,000,000



16,254,929


CA74814ZAT09


Others (1)

2035-04-01


1995-04-11


04-01 & 10-01


-



    150,000,000



21,753,554


CA74814ZAS26


From 1999-04-01 to 2006-10-01: $2,000,000 each Interest Payment Date

2035-04-01


1995-01-31


04-01


-



    150,000,000



47,303,218


CA74814ZAH60


Others (2)

2035-04-01


1997-12-15


04-01 & 10-01


6.50



    300,000,000



296,552,436


CA74814ZBP7



2035-04-01


1999-02-02


-


-



    456,000,000



143,649,598


CA74814ZCB72


Zero-coupon Note

2036-12-01


2008-11-04


06-01 & 12-01


3.25



    420,470,109



414,717,444


CA74814ZDW01


Real return medium-term notes. Yields linked to the CPI for Canada

2038-12-01


2006-08-29


06-01 & 12-01


5.00



    4,500,000,000



4,575,751,828


CA74814ZDK62



2039-10-01


1999-02-05


-


-



    525,000,000



141,973,786


CA74814ZCC5



2040-04-01


2000-05-25


-


-



    463,000,000



480,091,496


CA74814ZCJ0


Others (3)

2043-07-08


2003-07-08


01-08 & 07-08


5.60



    80,000,000



80,350,335


CA74814ZCW1



2049-09-21


2008-12-01


09-21 & 03-21


5.10



    3,400,000



3,406,730


CA74814ZDX83



2051-09-21


2006-11-23


09-21 & 03-21


5.00



    420,000,000



451,852,561


CA74814ZDN02



2053-09-21


2008-12-01


09-21 & 03-21


5.10



    12,192,000



12,121,323


CA74814ZDY66



2056-12-01


2006-04-07


06-01 & 12-01


Various



    1,500,000,000



1,487,939,580


CA74814ZDJ99



2057-09-21


2008-12-01


09-21 & 03-21


5.10



    9,857,000



9,840,454


CA74814ZDZ32



2058-09-21


2008-12-01


09-21 & 03-21


5.10



    8,326,000



8,320,871


CA74814ZEA71



2059-09-21


2008-12-01


09-21 & 03-21


5.10



    6,294,000



6,296,938


CA74814ZEB54



2061-09-21


2009-02-11


09-21 & 03-21


5.00



    25,000,000



25,151,862


CA74814ZEC38



2062-09-21


2006-11-23


09-21 & 03-21


6.70



    150,000,000



212,375,780


CA74814ZDP59



2065-06-01


2009-03-02


06-01 & 12-01


Various



    235,000,000



228,917,580


CA74814ZED11



2065-09-21


2006-09-21


09-21 & 03-21


6.35



    940,000,000



1,230,248,252


CA74814ZDM29



2076-12-01


2007-06-29


06-01 & 12-01


Various



    500,000,000



489,399,760


CA74814ZDT71


Others (4)



















Savings Products

Savings Bonds

2009-2019




06-01


3.25-3.75



    337,392,297



    337,392,297




Put (1)

Other Savings Products

2009-2019




Various


Various



    5,557,836,391



    5,557,836,391






Receiver General of Canada

2009-2033


1988-2008


02-01 & 08-01


4.61-11.33



    95,747,049



    95,747,049




Put (2)


Assumed Debt

2013-2017


1963-1967




5.125/5.75



    12,959,649



    12,959,649




Payable in semi-annual installments, including principal and interest


Immigrant Investor Program

2009-2014


2004-2009


-


3.47-5.46



    3,013,200,000



    2,738,602,552





Société immobilière du Québec


2013-03-28


1988-03-28


03-28 & 09-28


10.10



    59,427,570



    59,427,570







2014-06-16


1989-06-16


06-16 & 12-16


10.50



    150,000,000



    150,000,000







Société québécoise d'assainissement des eaux


2014-07-31


1989-07-31


01-31 & 07-31


10.20



    50,000,000



    50,000,000







Immobilière SHQ


2009-05-04


2004-05-04


4th of each month


4.240



72,356,803



55,528,175







2009-10-01


2004-10-01


1st of each month


5.050



179,600



143,355







2010-03-01


2005-03-01


1st of each month


3.830



80,628,798



60,379,089







2010-06-01


2005-08-01


1st of each month


3.720



66,739,882



59,410,795







2010-09-06


1990-09-06


03-06 & 09-06


11.375



125,000,000



105,409,000







2011-01-01


2002-01-01


1st of each month


5.770



124,661,500



85,041,492







2011-05-01


2006-05-01


1st of each month


4.510



90,924,507



74,409,835







2011-05-09


1991-05-09


05-09 & 11-09


10.800



180,000,000



143,353,000







2011-05-13


1993-05-13


05-13 & 11-13


8.950



689,900



197,900







2012-03-01


2002-04-01


1st of each month


6.240



51,147,133



43,277,083







2013-05-13


1993-05-13


05-13 & 11-13


8.950



199,241,761



156,107,100







2013-11-01


2008-11-01


1st of each month


3.010



111,950,281



108,419,395







2014-02-01


2009-01-19


1st of each month


1.820



30,538,851



30,258,952







2014-04-01


1999-04-01


04-01


5.944



1,535,744



778,402







2015-04-01


2005-04-01


1st of each month


4.810



257,972,087



224,930,937







2017-02-01


2007-02-01


1st of each month


4.480



64,558,765



58,728,413







2019-07-01


1999-07-01


07-01


6.875



391,579



277,115







2020-07-01


1999-07-01


07-01


Various



6,492,063



4,760,132







2020-07-01


2002-07-01


07-01


6.875



14,497,735



12,188,530







2021-07-01


1999-07-01


07-01


Various



30,860,513



23,654,100







2021-07-01


2005-07-01


07-01


6.875



18,937,434



16,753,253







2021-07-01


2006-07-01


07-01


7.875



4,869,822



4,497,585







2022-07-01


1999-07-01


01-01 & 07-01


7.875



715,719