For Quebec, the hardest part remains to be done in its march towards eliminating the wealth gap with Ontario.
Quebec added some in its March 21 budget. “The government is continuing its efforts to create wealth and increase Québec’s economic potential. It is maintaining its objective of reducing the real GDP per capita gap with Ontario to less than 10% by 2026. In addition to the $9.2 billion planned to improve Quebecers’ disposable income, investments totaling $2 .9 billion dollars over the next five years will make it possible to act on the determinants of economic growth, which are productivity gains, innovation, enhancement of the regions and the increase in the pool of qualified workers”, we read. in the documentation.
The Legault government is approaching this first objective. “When we came to power, the gap was 16.4% of GDP per capita. We are now at 12.8%,” said the Minister of Finance, Eric Girard, during the presentation of his economic update in December. In addition to the 2026 target, it has also set itself the goal of catching up with Ontario’s standard of living by 2036. To do this, the effort must come from 80% of the increase in productivity, 10% of the increase in the labor force pool and 10% of the employment rate.
However, this distance to be covered will not be part of the continuity of the momentum. Especially since Ontario will not stand still. “If no new policy aimed at stimulating Quebec’s potential GDP is put in place, the gap between Quebec’s and Ontario’s potential GDP per capita will shrink by at best 0.4 percentage points per year. […] At this rate, and given the uncertainty, it would take up to 15 more years to close half of this gap,” Scotiabank economists have estimated.
In its 2022 report, the Center for Productivity and Prosperity (CPP) maintains that, if Quebec maintained the growth rate recorded during the 2016-2019 period (i.e. 1.74% per year, or growth of 1.5 times faster than the historical trend) and Ontario maintained the same pace (i.e. 1.17%, a rate close to the historical trend of 1.11%), Quebec would catch up with Ontario around 2039. But this performance still needs to be maintained.
At Scotia, it is pointed out that, while Quebec has recorded slightly faster growth in its potential GDP than Ontario since 2020, the difference can be explained in particular by the supply shock and the disruptions in the supply chain. supply, particularly felt in the automotive sector. “Primarily due to higher immigration and the phasing out of supply constraints […]we expect that over the next few years Ontario’s potential GDP will grow a little faster than in Quebec,” ie 2% and 1.6% respectively annually.
Also, from the beginning of 2017 to mid-2019, the trend growth in capital intensity per job was 1% in Quebec, compared to 0.2% in Ontario, which thus favors labor productivity growth. – of Quebec work. Since then, progress has been similar between the two provinces.
Finally, due to higher immigration in Ontario and faster population aging in Quebec, Scotia economists predict an annual population growth gap of between 0.6 and 0.8 percentage points. favoring Ontario. This, however, ultimately produces a neutral effect on GDP per capita.
For its part, the CPP uses an aging population scenario proposed by Statistics Canada, which calculates that the average annual growth of the population of Quebec between now and 2036 will be twice as low as in Ontario (0.7% against 1.6%). More importantly, “the working-age population—those aged 15 to 64—is expected to grow four times more slowly in Quebec than in Ontario (0.3% versus 1.2%)”.
In short, “our analysis shows that Quebec performs well compared to Ontario in terms of the equilibrium unemployment rate and the growth of multifactor productivity. However, improvements are needed regarding the future development of the labor force participation rate and capital intensity”. Scotia economists therefore call for stimulating investment in fixed capital by companies through targeted interventions and aiming for an increase in the intensity of capital per worker.
The CPP also keeps hammering it. Especially since the aging of the population and the scarcity of labor impose a greater level of substitution between labor and capital. “The $5,960 per capita that currently separates Quebec from Ontario will have to be recovered on the basis of accelerated growth in Quebec productivity. »
And the CPP adds: In 2021, more than 80% of the sums allocated in the form of tax credits targeted employment, financing de facto part of the related wages. “Particularly aberrant in a context where the issue of the scarcity of labor is holding back economic growth, this approach reduces the effectiveness of tax assistance almost to nothing. »
“A major fundamental reflection will have to begin to get the government apparatus out of its logic of protecting jobs and increasing the size of businesses in terms of economic development. »