The day after the presentation of the budget, after the media storm, the Prime Minister was able to lock himself in his office and wonder what went wrong. François Legault was convinced that he would succeed in reducing taxes significantly after regaining control of public finances. He must now postpone the tax cuts until an uncertain next term, and today, most Quebecers doubt that he is capable of correctly managing the government budget.
The Prime Minister is right to worry about his future. However, for Quebecers, the situation is not as hopeless as it seems. The Quebec economy is solid and could make it possible to pay for quality public services. We can understand why the budgetary situation has deteriorated so quickly and act accordingly.
François Legault did not tackle the lack of efficiency in public administration, an urgent task for which he was particularly well prepared. Like his predecessors, he knows very well that there are many savings to be made in public administration through reorganizations and the abolition of mandates and groups which no longer have their reason for existence. These savings could then allow tax cuts.
However, this re-engineering of the entire civil service would require a lot of effort and, above all, it would require ministers to directly oppose senior civil servants. No government has dared to do this until now because ministers are too dependent on this politicized public service. Instead, senior civil servants are being asked to eliminate their positions themselves. Mr. Legault now announces, at the end of his mandate and with the same approach that has failed time and time again, that he will tackle inefficient spending.
The Prime Minister considers himself less of an accountant and more of a successful businessman. He believes in unlimited economic growth, which he believes can create wealth, and he supports entrepreneurs, from the budget, in competition with services to the population. Its zeal to overstimulate the economy is one of the causes of the deterioration of public finances due to the massive immigration it causes, Quebec already being at full employment. Immigration policy is primarily the responsibility of the federal government, but François Legault is solely responsible for the arrival of tens of thousands of temporary workers, requested by his subsidized entrepreneurs, who also put pressure on services. public.
Ultimately, the obsession with reducing public spending has caused enormous damage to institutions, which must now be repaired at great expense, although we understand that the population will not accept losing the quality of service that it was 20 years ago.
Accounting changes
For 20 years, our governments have reduced the importance of public spending for ideological reasons, taking inspiration from our American neighbors. There would be a limit to making the rich pay for public services that are offered to ordinary people and that they themselves use little. Taxes should therefore absolutely be lowered. To gain acceptance for austerity, creative accounting was used which suggests that the State no longer has the means to pay for the same services.
Thus, in 2006, the Balanced Budget Act was amended so that part of the government’s revenues have since been diverted to the Generations Fund, which is used to reduce the growth of Quebec’s debt. This mechanism is unjustified, the debt as a function of GDP is entirely acceptable and the debt essentially comes from infrastructure spending, which is not counted in current spending and which deserves to be better controlled. Above all, this Fund deprives the population of services that they can afford. Thus, young people are being deprived of quality education under the pretext that reducing the debt would be essential to ensure a better future for them.
The accounting changes also created a stabilization reserve which must accumulate budget surpluses when they arise and mitigate deficits in more difficult times. François Legault, wanting to go further in austerity than his liberal predecessors, used this relevant tool to further reduce spending in public services. In the prosperous years before the pandemic, he allowed $12 billion to accumulate in the reserve rather than give some relief to underfunded public services due to the 2008 financial crisis.
This reserve could have at least served to mitigate the effect of the current economic downturn, but it was used differently. For the years 2020-2021 and 2021-2022, expenses and revenue losses due to the pandemic would have created a cumulative deficit of approximately $15 billion, and it would have been entirely normal for such an inevitable deficit to be absorbed by the public debt and repaid over a long period. The Legault government instead decided to use the $12 billion accumulated in the stabilization reserve to immediately resolve the majority of this deficit.
A strategy that doesn’t work
In 2023-2024, permanent tax cuts of nearly $2 billion per year were announced while the stabilization reserve was dry. In the last budget, the government included contingency provisions of $1.5 billion per year, even though it had plenty of room to be very conservative in its forecasts. He still hopes to create a structural surplus to lower taxes.
Because of this provision and the Generations Fund, the deficits forecast from 2024-2025 are overestimated by approximately $4 billion annually. So next year’s record deficit of $11 billion is more like $7.3 billion.
The strategy which aimed to convince the population that there was no longer enough money for public services failed, in a context where there always seems to be money for the government’s priorities. People understood that the unions’ demands regarding wages were reasonable and that their demands regarding the lack of resources were also theirs.
More fundamentally, citizens consider that the vision associating taxes on the rich with charity denies the essential role that they all play in the creation of wealth and the viability of our economic system.