The last Quebec elections unfolded as if a recession was not on the horizon. The re-elected government of François Legault should still have some budgetary leeway. Even if it means renaming some of his electoral promises.
The economic outlook is rapidly darkening around the world. Struggling with soaring inflation that is not easily tamed, the world’s central banks are stepping up their interest rate hikes to curb household consumption and business investment. The impact of the war in Ukraine on food and energy prices is in turn weighing on the global economy which was already struggling with supply chain disruptions, labor shortages work and rising housing costs.
Stock markets are down. Investors are retreating to safe havens, driving down the value of nearly every currency except the US dollar and drying up available financing for developing countries. Forecasters are constantly revising their growth projections downwards and speaking more and more openly of a recession, including in Quebec.
And yet, it was not until the last week of the election campaign that CAQ leader François Legault mentioned the growing risk of recession and the importance of keeping in power “competent people who have proven themselves” like his team. .
What recession?
Until then, the main parties had only had it for the fight against inflation in terms of economic issues, noted Thursday, in an interview with the To have to, the director general of the Institut du Québec, Emna Braham. “It was the tree that hid the forest. “All the parties acted as if they had plenty of money to give people in exchange for their votes,” laments Louis Lévesque, president of the Public Policy Committee of the Association of Quebec Economists.
In their defense, it must be admitted that the economic outlook has deteriorated rapidly in recent months, to the point where everyone seems to be in the wake of events, including the experts, who are forced to constantly correct their forecasts downwards, observes the professor and holder of the Chair in Taxation and Public Finance at the University of Sherbrooke, Luc Godbout.
“There is an extraordinary degree of uncertainty,” confirms Emna Braham. There is no consensus on the depth and duration of the economic downturn ahead of us. But there is consensus that this is coming in the coming months. »
In its election platform, the Coalition avenir Québec (CAQ) promised just under $19 billion in new spending for the next five years, including $3.5 billion in immediate assistance to taxpayers to mitigate the effects of inflation and a just over a billion more than expected in infrastructure. To this were added in particular approximately 9.5 billion in tax cuts and reduction in the increase in tariffs. All these commitments were to be offset, in part, by economic growth that was not weaker, but a little stronger than the Ministry of Finance still thought at the beginning of the summer. However, the CAQ’s platform did not provide for a return to balanced budgets before 2027-2028.
In his Pre-election report, the Ministry of Finance estimated that a “medium-sized recession” would reduce government revenues by $8.3 billion over five years, to which should also be added possible spending on support measures for individuals and businesses. the cost of which has not been estimated. At $2 billion a year, for a total of $10 billion over five years, the “economic risk reserves” that the Department of Finance is accustomed to setting aside would normally make it possible to absorb at least the loss of income, but the CAQ platform plans to reduce the size of this cushion from 10 to 8 billion.
Buoyed by “solid economic growth this year”, a healthy job market and a less severe drop in real estate prices than in the rest of Canada, Quebec should generally do better than the others in the coming months, the Bank of Montreal said in a new update to its economic forecasts on Wednesday. It predicted a decline in growth in Quebec from 3.4% this year to -0.1% next year, against a decline of 2.9% to -0.4% in Ontario.
Tax cuts for recovery
Even before there was any question of a recession, we would have liked the CAQ election platform to deal a little more seriously with issues such as the return to balanced budgets and the reduction of the public infrastructure maintenance deficit, argues Louis Levesque. A sharp economic downturn will do nothing to fix things, especially if François Legault persists in forging ahead with his generous checks and tax cuts. “I have no doubt that they will be able to adjust, but it is always better to keep a little leeway. »
Who knows ? Some CAQ promises may be recycled into economic stimulus measures, notes Antoine Genest-Grégoire, researcher at the Chair of the University of Sherbrooke. “We boasted a lot in Quebec about the foresight we had in deploying an infrastructure plan during the 2009 crisis when it had actually been decided months earlier in response to the collapse of the Remembrance viaduct. »
“This time, I don’t see how we could embark on such investments after spending the entire election campaign complaining about the lack of labor in construction. But the Legault government might want to take the tax cuts and additional transfers from its anti-inflation shield, repackage them and rename them to make them its recovery plan for the Quebec economy. »