The reduction in Quebec’s debt is not an end in itself and will have to stop one day, experts say to the Minister of Finance. This will allow even more effort to be devoted to other files, such as climate change. “Debt reduction should not be an endless exercise”, notes a document summarizing the opinion of some twenty economists who have examined, in response to an invitation from Minister Eric Girard, Quebec laws on balanced budgets and debt reduction.
First, say the experts, because “improving the financial situation is above all a means of enabling the Quebec government to achieve its objectives by [matière] of services that meet the needs of the population ”. In addition, they continue, because financial markets and major international organizations, such as the International Monetary Fund, today tend to deem higher levels of indebtedness acceptable than before, in particular because of the interest rates. relatively low. And then, they argue, “as the debt is reduced, other goals, such as upgrading public services and measures needed for climate change mitigation and adaptation, will become more priorities ”, including in terms of intergenerational equity.
However, the government of Quebec still has a long way to go before it comes to no longer worrying about its debt, specify the economists who responded to a short survey and held a discussion meeting organized by the Public Policy Committee of the Association of Quebec Economists, the Chair in Taxation and Public Finance at the University of Sherbrooke, CIRANO and the Institut du Québec. If it should reach before the prescribed time one of the two targets set by the Act to reduce the debt and establish the Generations Fund (a gross debt ratio of 45% as a proportion of gross domestic product for 2026), the same is not true for the other target (cumulative deficits equivalent to 17% of GDP).
Quebec is also in the process of failing to meet its obligations imposed by the Balanced Budget Act, with structural deficits of 4 billion per year which will not be absorbed by 2026 either, to such an extent that Minister Girard indicated, during of its economic update on Thursday, its intention to temporarily suspend the application of the law.
Reform proposals
If they qualify this law adopted in 1996 as a success, just like the other, which dates back to 2006, the experts still consider it abnormal that their application should be suspended every time a recession occurs. According to them, we should take the opportunity to make improvements.
With regard to debt, they propose, among other things, that we replace the arbitrary objectives and deadlines with major principles that are both more flexible and clearer. Instead of pursuing two targets, the law should, for example, oblige the government of Quebec to bring its indebtedness within “a target range” lower than the average of the Canadian provinces. To facilitate comparisons, we should use a single indicator, which would be net debt as a proportion of GDP, and it would be up to the government to explain each year when and how it intends to reach its target. Currently, this net debt of Quebec exceeds 42% of the GDP, against an average of 35% in Canada.
While the obligation to contribute each year to the Generations Fund and to a stabilization reserve has proven to be a useful and effective budgetary discipline mechanism for 15 years, it should be specified in the law that the room for maneuver conferred by the stabilization should only be used in the event of a recession, and not to compensate for a shortfall caused by a tax cut or an increase in spending. Since there is a financial and political risk in letting the Generations Fund grow indefinitely, a ceiling should also be set, note the experts.
Ideas that make their way
Among these proposals sent to Eric Girard after he had launched an appeal to “the community of university economists” to come to him with advice and ideas, some already seem to be gaining ground. During his visit to the Chamber of Commerce of Metropolitan Montreal on Monday, the Minister of Finance said he was rather in favor, for example, of the idea of replacing his two debt reduction targets with one, which would be precisely the net debt as a proportion of GDP.