QUEBEC — Finance Minister Nicolas Marceau presented what he termed a balanced budget Tuesday, capping infrastructure spending at $9.5 billion a year and committing his Parti Québécois government to hold down new spending next year to a squeaky lean 1.8-per-cent limit.

But Quebec's two main opposition parties were quick to reject Marceau's plan, threatening to defeat the minority PQ government, which would bring on a new election in January. But the Liberals later backed down, saying they have no intention of triggering another election so soon.

Former Liberal finance minister Raymond Bachand accused Marceau of hiding a $1.8-billion deficit, while François Legault of the Coalition Avenir Québec complained the Parti Québécois government is not abolishing the health tax as it promised, and will raise hydro rates.

Marceau said his spending controls, plus new taxes, will balance Quebec's budget for 2013-2014, the financial year starting April 1, and projected he will hold the deficit in the current fiscal year down to $1.5 billion.

Bachand said Marceau's plan to exclude from the budget Hydro-Québec's $1.8 billion writeoff, reflecting the shutdown of the Gentilly-2 nuclear reactor, means the 2013-2014 budget, in fact, carries a $1.8-billion deficit.

If the budget is defeated, Quebecers could face a new election as early as Jan. 5. A vote on the budget will likely take place by the end of the month.

Legault said this is not the time to raise taxes and that all 19 of his MNAs will vote against the budget, leaving the fate of the PQ in the hands of the Liberals.

Tuesday evening, following a Liberal caucus meeting, acting party leader Jean-Marc Fournier clarified that the Liberals have no intention of bringing down the PQ government so soon after the September election.

But, "we have our eye on them," Fournier warned.

A report on Liberal infrastructure spending made public last week found huge cost overruns and $5 billion in new projects announced by the Jean Charest government during the election campaign that were not in the budget.

Treasury Board President Stéphane Bédard did not present his spending estimates for the new financial year, as expected, and an official from his department would only say the $5 billion in new projects, including hospital expansion projects for Montreal, now are in the "planning" stage.

Marceau estimated that closing Gentilly-2 will save the province $5.8 billion. As a consequence, he will ask Hydro-Québec to pay that savings in the form of a special $215-million yearly dividend for the next 30 years into the Generations Fund, offsetting the provincial debt.

To balance his budget for this year and in years going forward, Marceau announced a $4-a-carton hike in cigarette taxes and an increase in the alcohol levy by three cents on a bottle of beer, 17 cents on a bottle of wine and 26 cents on a bottle of spirits. As well, a special payroll tax on banks and other financial institutions will be raised and prolonged beyond the planned to 2014 phase-out to 2019, generating $211 million for a full year.

The bankers' payroll tax will raise $19 million more this year, higher cigarette taxes $43 million and the increased alcohol tax $33 million, plus a $100-million reserve to absorb the remaining $195-million shortfall.

For 2013-2014, the higher cigarette tax will add $130 million to the treasury, the additional alcohol tax $100 million.

Marceau also formalized his previously announced plan to transform the $200-a-head health tax into a "progressive" tax, so that payroll deductions can be adjusted starting Jan. 1.

Quebecers with incomes over $100,000 will have to pay an additional 1.75 per cent in provincial income tax, while plans for higher capital gains and dividend taxes have been scrapped.

"This budget will enable tax justice," Marceau told the National Assembly. "Middle-class families who struggle to make ends meet will see their financial burden eased. "Conversely, the state will require the more affluent among us to do more."

As promised in the election campaign, the PQ government is cancelling a planned 20-per-cent hike in hydro rates that would have cost an average household $408 a year. Instead, Hydro-Québec's power block of 165 terawatt-hours, previously frozen at 2.79 cents a kilowatt hour, will be indexed to inflation, increasing rates by $120 a year.

And Marceau called for belt-tightening by the provincial utility, saying Hydro-Québec should shed 2,000 jobs by attrition next year.

Another PQ promise, to offer refundable tax credits of $100 for children participating in physical, artistic and cultural activities, will be phased-in over five years. And, as announced, the new government plans to add 28,000 $7 daycare places.

New spending on health care will rise 4.8 per cent, while education spending will only increase by the planned average of 1.8 per cent, a "worrying" level, said Martine Desjardins, president of the Fédération étudiante universitaire du Québec.

Premier Pauline Marois has announced a summit on access and financing of post-secondary education in February. Marceau repeated that the government's position is that tuition fees will be indexed to the cost of living.

Marceau pledged the PQ government would attract private investment by offering competitive taxes for business, tax credits, a 10-year tax holiday for new investments of $300 million or more and creation of a new development bank.

The Banque de développement économique du Québec would absorb Investissement Québec, the government's investment arm, and would have $500 million a year to develop Quebec's regions.

It will also have two $250-million funds, one to develop new jobs for the Gentilly-2 region, another for the Asbestos region, affected by the PQ decision to stop asbestos mining and exports from Quebec.

Université de Sherbrooke tax expert Luc Godbout said Marceau's plan means that by 2016-2017, Quebec will have the same tax revenues Bachand projected in his March budget, with $500 million less spending.

"That will allow a balanced budget," Godbout said. But Marceau's plan hinges on maintaining controls on spending.

The Fédération des chambers de commerce du Québec found Marceau revenue and spending projections "optimistic," but federation president Françoise Bertrand praised his goal of attracting private investments.

In Montreal, Mayor Michael Applebaum denied his city got short shrift in the provincial budget.

"I think the government is in a situation," he said. "They ran an election campaign. They made election promises. They want to fill these promises."

The city has indicated its needs to provincial authorities in the past, including a 5-cent increase in the gasoline tax over 10 years to helps fund public transit. "We'll continue to work with the government to make sure they hear our needs."

kdougherty@montrealgazette.com

Twitter.com @doughertykr