“Your mission, assuming you accept it, is to balance Quebec’s budget within five years, by bringing spending back to its pre-pandemic level, while ensuring adequate health and education services. This tape will self-destruct in five seconds. Good luck. »
It is easy to imagine Eric Girard in a scenario of Impossible missionto see the challenges that the Minister of Finance has launched in view of the budget that he will table within a few weeks.
It’s as if he wanted to fit a triangle into a circle.
For the first time since coming to power, the Coalition Avenir Québec (CAQ) faces very difficult budgetary choices. Choices that will hurt all the more because the CAQ did not prepare the population for hard times, quite the contrary.
Just last year, when its revenues were inflated by inflation, the CAQ offered a generous permanent tax cut. Yet it was clear that inflation would return like a boomerang, as state employees demanded salary increases, driving up government spending.
The Minister of Finance will have no choice but to adapt his scenario, which is already very tight.
In his latest economic update, presented last November, he forecast growth in portfolio spending of just 1.6% next year, a level below inflation.
An effort of rigor is welcome, because the CAQ has been so spendthrift for five years that the level of spending per capita has never been so high in Quebec for 30 years, if we exclude the year of the pandemic, notes the Association of Quebec Economists (ASDEQ)1.
But to limit growth to 1.6% next year, without harming health and education, the CAQ intends to reduce all other spending by 2.4%. Imagine the challenge: the waiting list continues to grow for daycare; the overwhelmed justice system releases people accused of serious crimes; roads and schools are falling into ruin…
However, the choices will be even more painful than expected last November. Firstly because the economy will run more slowly, if we rely on recent forecasts from Desjardins and the National Bank.
And then because the agreements for the renewal of collective agreements will ultimately cost 2.9 billion more per year than expected, according to the Research Chair in Taxation and Public Finance at the University of Sherbrooke2.
Will the CAQ want to tighten its belt even more? There will be rigor, but “no austerity”, Prime Minister François Legault swore a few days ago. You would have thought he was playing in the same film as his predecessor Philippe Couillard!
To give himself some breathing room, Eric Girard instead warned that “deficits will be greater”, opening the door to a postponement of the return to budgetary balance planned for 2027-2028, after seven years in the red.
But by doing so, the CAQ would be transgressing the laws on the consolidation of our public finances which were modernized last December. This would taint Quebec’s credibility on the financial markets, which could end up costing us more in interest.
And fundamentally, if we postpone the return to a balanced budget any longer, we find ourselves shoveling our problems onto the backs of future generations, while intergenerational equity is already under attack.
Let us not forget that the tax cuts granted last year, on credit, were financed by reducing payments to the Generations Fund, thus postponing by five years the objective of reducing net debt to 30% of GDP ( i.e. in 2037 rather than 2032).
Let us also not forget that our infrastructure suffers from a chronic lack of maintenance. Upgrading them would cost $35 billion, an amount that has doubled in six years. This is another burden that we leave to young people who will also have to deal with the costs of climate change and the aging of the population.
On behalf of young people who have had it tough because of the pandemic, we must stay focused on returning to a balanced budget. No, it won’t be easy. But let’s be transparent and focus on productivity.
In terms of transparency, Quebec could commit to periodically providing a report on intergenerational equity, as in Australia.3. This would be a mandate tailor-made for a future parliamentary budget officer who would ensure the long-term fiscal sustainability of the province. François Legault spoke about it 10 years ago on the opposition benches. Go!
In terms of productivity, it is time to clean up our tax system. Why not review the costly business assistance programs designed at the time when we wanted to create jobs? Today, we lack workers, no jobs! Money could be redeployed to better encourage innovation. Ultimately, this would increase our revenues… and better address the challenges of our public finances.
But all this will take time. Until then, the CAQ will need political courage to accomplish its mission. Good luck.