If nothing changed, the government’s deficits and indebtedness would remain relatively under control for the next few years in Quebec, even after the pandemic and with the aging of the population. But now, we will surely want to improve health care and we will have to deal with climate change.
At first glance, it’s almost too good to be true. Using the economic simulation tools of the Conference Board of Canada, the Institut du Québec (IDQ) arrives, in a study unveiled this week, at the conclusion not only that the Government of Quebec will briefly have some budgetary leeway, but also that after the deficits have started to grow again under the effect in particular of the aging of the population, the burden of its debt will be equivalent, in 10 years, to what it was still in 2019.
“These are only projections, but they illustrate the significant efforts that Quebec has made over the years to clean up its public finances with its Balanced Budget Act and the creation of the Generations Fund,” said the President and Chief Executive Officer. from the IDQ, Mia Homsy. “In short, what this says is that there will be no budgetary disaster if we stay the course and do not change our ways. The problem is that we will probably want to make changes, if only health improvements, and we will have no choice but to make them in terms of accelerating the transition and adaptation to climate change. »
In the short term, public finances should be doing well, notes the IDQ based on the latest trends. When Quebec Finance Minister Eric Girard is putting the finishing touches to the next budget, which he will unveil on Tuesday, the Quebec government was heading towards a final accounting deficit (before payment to the Generations Fund) of 1.6 billion for the 2022-23 financial year, after which it was to return to a slight surplus for the following three years. These projections took into account the costs generated by the pandemic, including those that will persist over time, such as wage increases, improvements in policies to support the autonomy of the elderly and vaccination campaigns in the health sector. .
According to this reference scenario, it is only from 2026-2027 that the deficits would gradually return, approaching 10 billion in 2032-2033, mainly due to the aging of the population and its impacts on health expenditure or even on the shortage of manpower. But even then, and thanks in particular to the low interest rates and the staggering of the debt, the debt service burden would amount, at most, to 7.3% of income. government totals, slightly less than in 2018-2019 and at places of the dark period of the late 1990s (16%).
The path traveled
It must be said that Quebec has come a long way in terms of controlling deficits and the debt since the adoption of its laws on balanced budgets (1996) and on debt reduction and the creation of the Generations Fund (2006). Its net debt remains the third in proportion to the gross domestic product (39.8%) – behind in particular Ontario (41.9%) – but its gap with the other Canadian provinces has been considerably reduced, welcomed the economist Louis Lévesque in a study on the subject last fall.
This situation also prompted some twenty experts, in December, to invite Minister Girard not only to maintain the major objectives of the laws in this area while modernizing them, but also not to reduce the debt an end in itself. They reminded him that financial markets and major international organizations, such as the International Monetary Fund, now tend to find higher levels of debt acceptable than before, partly because of relatively low interest rates. They argued that, “as debt is reduced, other goals, such as upgrading public services and taking steps needed for climate change mitigation and adaptation, will become more important. priorities”, including in terms of intergenerational equity.
The pandemic has brutally exposed the existing deficiencies in the delivery of health services, despite spending at least as high as elsewhere before the pandemic and the commitment of significant additional spending since.
Upcoming changes
In its economic projections, the IDQ describes the trajectory of a Quebec government which will have to deal with its famous demographic shock, which will reduce, in the next ten years, the average growth of its income to 2.83% per year, against 3.27% for expenses and only 4.27% for health.
But Quebec and its government will have to deal with more than that, observed the Public Policy Committee of the Association of Quebec Economists (ASDEQ) in its opinion sent to Minister Girard as part of its pre-budget consultations. “The pandemic has brutally exposed the existing deficiencies in the delivery of health services, despite spending at least as high as elsewhere before the pandemic and the commitment of significant additional spending since. »
And what about the climate change crisis, asks the IDQ. “Quebec is clearly missing its greenhouse gas reduction targets, we can expect that an acceleration is necessary,” says Mia Homsy. And then, the upheavals in the climate will also have repercussions on both the income and the expenditure of the State, if only in terms of damage to infrastructure, electrification of transport, costs of health care rendered necessary by pollution and the heat wave, loss of agricultural and forestry income due to drought, but perhaps also new exports of clean electricity and products from new green economic sectors.
However, not only does the government not take into account most of these future climatic and economic factors in its budgetary plans, but the risks they represent are not even estimated or presented, lamented at the beginning of the year. ‘IDQ, in another of his studies. The example cited was British Columbia, which has begun to include a climate change provision in its budgets.
Offers
These many challenges awaiting Quebec and which will complicate the lives of its finance ministers demand that we tackle them without further delay before they cause the economy and public finances to get out of hand, warn the experts.
On the economic front and the labor shortage, this should include, according to ASDEQ, “a systematic review of government interventions in economic development in order to replace criteria related to job creation with criteria related to the creation of wealth”. Already heavily taxed, Quebecers could remain so, but in a less harmful way to growth, we add, if less recourse was had to income tax and more to consumption taxes. Additional taxes on pollution would also be a valuable ally of the green shift, even if their revenues were automatically returned to the pockets of taxpayers.
For the IDQ, it is a question of investing much more not only in automation and digital technologies, but also in the education of young people and the continuous training of workers.
Mia Homsy urges the government to be wary of the economic and financial upturn that will briefly come its way. “We have enough challenges ahead of us not to waste the leeway we have in the short term by allowing ourselves to be distracted by more specific or electoral issues. We have done well in recent years, we should not lose sight of the long road strewn with pitfalls that awaits us. »