The government treats businesses with small onions: the average interest rate on the loans it gives them is 2.08%, which is much lower than what it charges students and community organizations.
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The average rate of 2.08% granted to corporations is compared to that imposed by 2.52% by community organizations, the 2.95% paid by students and the 3.05% adopted by community organizations, we learn in the public accounts 2021-2022 recently released by the Quebec Ministry of Finance.
“Such low interest rates should be seen as corporate subsidies,” said Nicolas Gagnon of the Canadian Taxpayers Federation.
Less than the borrowing rate
The average interest rate on corporate loans is significantly lower than the rate at which the government borrows on its own, which was 3.06% in the fiscal year ended March 31, the accounts show.
Quebec’s “significant favorable terms” on business loans cost taxpayers more than $100 million a year, the Treasury Department calculates.
The low average interest rate can largely be explained by the many interest-free loans granted to companies over the years. According to the Ministry of Economy, these accounted for almost 36% of the total in 2020-2021.
As of March 31, 2022, Quebec had lent more than $3.6 billion to corporations. This corresponds to almost 56% of all loans granted by the state.
Risky Loans
Government loans to companies are risky: nearly 35 percent of the $3.6 billion total is backed by secured assets. And no less than a quarter of the portfolio is covered by provisions for losses, meaning the government expects to be unable to recover those sums.
“With the recession approaching, the government should reduce certain spending,” Mr Gagnon said. Why not start with business grants? »
Less Spoiled Students
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Maya Labrosse, President of the FECQ.
For Quebec Collegiate Student Federation (FECQ) President Maya Labrosse, the overall debt issue is more important than interest rates alone.
For years, student organizations have been urging the government to provide more grants to reduce borrowing.
“We need to make sure students don’t go into too much debt, which would prevent them from sustaining those interest rates,” says Ms Labrosse.
The FECQ hopes that Quebec can agree with Ottawa on the federal project to eliminate interest on student loans, mentioned recently in Le Devoir.
40% jump in financial support levels in just one year
The Department of Commerce, led by Pierre Fitzgibbon, provided more than $1.6 billion in financial support to companies in 2021-2022, up 40% from the previous year.
Amounts paid include $33.3 million provided under the Fonds Capital ressources naturelles et énergie, $208 million through the Fonds pour la développement des entreprises québécoises and $1.36 billion through the Economic Development Fund , show public accounts for 2021-2022 released earlier this month.
Strong impact of the pandemic
The figures for 2020-2021 and 2021-2022 were inflated by the Concerted Temporary Program of Action for Business (PACTE) implemented in the context of the pandemic. Over a period of approximately 18 months, approximately 1,479 companies received loans and loan guarantees totaling US$1.24 billion under this program.
In 2019-2020, the Commerce Department provided nearly $855 million in financial support to businesses, mostly in the form of loans but also equity investments.
At the end of March, the government had more than $3.6 billion in business loans. By comparison, Ontario, whose population is 70% larger than Quebec, had only lent $970 million to companies on the same day.
However, credit quality appears to be stabilizing for companies that Quebec has advanced funds to.
In 2021-2022, the government was not required to report any bad debt provisions related to corporate loans in its financial statements.
In the previous two years, he had written off more than $1.4 billion in that capacity. Specifically, the government had to write off its entire $1.3 billion investment in Bombardier’s C-series aircraft program, now known as the Airbus A220.
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