The debate on the Generations Fund was introduced into the election campaign, and that is not surprising.
Posted yesterday at 4:00 p.m.
On the one hand, for the period of the pandemic from 2020-2021 to 2022-2023, the Minister of Finance has decided to respect the principle of the payment of contributions to the Fund for the repayment of past deficits even if this required borrowing approximately 10 another .8 billion. On the other hand, for the other political parties seeking to fund new spending or tax cuts without increasing the deficit, it is attractive to use the payments currently earmarked for the Generations Fund. Debt repayment is no longer a priority.
This debate has become complicated with the publication of the Pre-election report on the state of public finances of the Ministry of Finance, which was made public on August 15. This report presents a significant improvement in the government’s budgetary framework stemming from faster GDP growth. Although this revision was considered plausible but risky by the Office of the Auditor General, the columnist of The Press Francis Vailles sees in this the possibility of an intermediate solution which would be to reduce the growth of annual payments to the Fund.
This would be possible because the level of relative debt is now stabilized, or even reduced below the initial objective which was to reduce gross debt to 45% of GDP. However, faced with the growing possibility of an economic recession, it currently seems premature to count on a financial improvement which is uncertain.
The Generations Fund
Moreover, the Generations Fund is a budgetary policy instrument that is based on ambiguous premises. It was created in 2006 in the wake of the budget accounting reform introduced in 1997-1998. Until then, the government had used cash accounting including both operating and investment expenditures. This method was replaced by accrual accounting equivalent to that used for businesses.
One of the advantages of the new accounts is to have made it possible to separate the total debt between that which was used to finance investments and that which was used to finance the accumulated budget deficits. It is with the aim of avoiding transferring this last debt to future generations that the Generations Fund was created by devoting special income for this purpose and by setting precise objectives for debt levels to be reached as a percentage of GDP in 2025-2026.
Ten years after its creation, as of March 31, 2016, the portion of the debt for accumulated deficits represented 32.9% of GDP and the initial objective was to reduce it by 2025-2026 to 17%. This objective will not be achieved, since it is currently expected that the percentage will be 19.2% as of March 31, 2026, which is equivalent to a difference of 13 billion.
In the 2022-2023 budget, the government announced that it would review the debt reduction policy for future years, which expires in 2025-2026. The focus will be on net debt and the target will be based on comparison with the Canadian average, which in effect means meeting the average of other provinces. At the end of this fiscal year, Québec’s net debt will be $206.7 billion, or 39.8% of GDP, while the Canadian average will be 33.0%, or 17.1% less, which which represents 35.3 billion. On this basis, we see that Quebec is still heavily indebted compared to the other provinces.
In conclusion, Quebec is not only over-indebted, but with the new accounting, it has a public finance management system that differs from international practice by not managing operating and investment expenditures as a whole. We have thus complicated the management of financial balances and the management of programs has also become more complicated by abolishing the regional decision-making bodies, by centralizing the management of the service networks, by under-financing the operational budgets of health, education , social services, accommodation for the elderly and by not taking sufficient care of the maintenance of buildings and equipment. Even justice and public security services are underfunded.
We are catching up in all sectors while political parties now want to lower taxes rather than tackle the difficult problems of managing and financing essential services. Where are we going when the management of our public finances is so disoriented?