Financial framework | An error of 12 billion from the PLQ

I dissect the financial frameworks of political parties during each election campaign. You know, those numbered reports that serve to enlighten voters on the cost of pledges and their impact on our collective finances.

However, while scratching, I discovered this year that the financial framework of the Quebec Liberal Party (PLQ) contained a major error, which had the effect of underestimating Quebec’s debt by $12 billion.

Essentially, the “party of the economy” estimates that the gross debt of Quebec, under the PLQ, would reach 240.6 billion dollars at the end of the mandate, that is to say at the end of the fiscal year 2026-2027. In reality, the figure will be rather 252.6 billion if we rely on the measures proposed by the party of Dominique Anglade, or 12 billion more.

The error was discovered by comparing the financial framework of the PLQ with the pre-election report and by talking with two analysts keen on public finances.

In the evening, the person in charge of the financial framework at the PLQ, Carlos Leitão, recognized the error. “You are absolutely right and we will adjust our debt calculation to take this into account. I think that we have not added up the cumulative effect of the annual deficits of our program”, explained the former finance minister during a telephone conversation. The document will be corrected by Wednesday at the latest, Mr. Leitão tells me.

The blunder is not without consequence. In its financial framework, the PLQ justifies the significant annual deficits of its program – which includes tax cuts of several billion – by the difficult economic context.

Above all, writes the PLQ: “although our financial framework does not propose a return to a balanced budget over the five-year horizon, the debt/GDP ratio will continue to fall”.

However, with the new figures, this relative debt will hardly decline any more. According to the pre-election report, gross debt will equal 39.7% of gross domestic product (GDP) as of March 31, 2023, and then decline to 37% as of March 31, 2027.

With the new debt corrected for the error, the debt/GDP ratio under the PLQ would reach 39.6% of GDP on March 31, 2027, practically the same level as the 39.7% on March 31, 2023.

That’s not all. In its financial framework, the QLP has chosen to omit expenses related to COVID-19 for the current year and the next two years, listed in the pre-election report. The omission of these expenses of 2.8 billion – of which more than 80% are for the financial year started six months ago – has the effect of once again underestimating the gross debt at the end of the mandate, this time by 2 .8 billion.

In the first version of its financial framework on the Internet, the PLQ said nothing about it. But the party recently chose to add an appendix to its document to explain the impact of such an omission on financial balances and the debt, after discussions with economists from the Association of Quebec Economists (ASDEQ).

On the phone, Carlos Leitão explains. “It’s not a mistake, but a decision we made. [de ne pas les inclure]. There are systematically budgeted expenses that do not materialize, in particular for salaries. You don’t see such expenditures in the government’s recent monthly financial operations report,” says Mr. Leitão.

This monthly report lists the income and expenses already realized, and not projections. It covers the first two months of the financial year (April and May 2022). It was published on September 2, the day before the PLQ’s financial framework, on September 3.

But wait, I’m not done. In addition to the error of 12 billion and the omission of the expenses of COVID-19 (2.8 billion), another not insignificant element has an impact on the estimate of the debt. The PLQ has chosen to spend all of the $2 billion in provisions for economic risks listed for each of the next 5 years in the pre-election report.

This decision of 10 billion, once again, makes the estimate of the debt of the PLQ questionable at the end of the mandate. A more favorable economic context than expected would allow the government not to use the provision and therefore to rack up larger surpluses, which would reduce the debt.

With its program, the QLP would no longer have such leeway – already spent – ​​and its gross debt could not be reduced like that of the report. The gap between the debt of the PLQ and the pre-election report is therefore growing by another 10 billion.

Carlos Leitão does not agree with this reading. “It’s a provision that usually ends up being spent at the end of the fiscal year,” he says.

All in all, we can reasonably estimate that the QLP’s financial framework underestimates Quebec’s gross debt by nearly $25 billion compared to that of the pre-election report (12 + 2.8 + 10) as of March 31, 2027.

That said, the PLQ is not the only party that draws on these provisions of 10 billion. The Parti Québécois (PQ) has also transformed these reserves into various commitments, and the Coalition avenir Québec (CAQ) has diverted 2 of the 10 billion for other purposes. These decisions also have an impact on our collective debt, although it should be remembered, however, that it fell below the objective that we set ourselves several years ago, of 45% of GDP.

Finally, the PLQ does not have a monopoly on errors. In its financial framework, the CAQ also made an error by erroneously adding the cost of certain promises in one of its lists. The error of 4.3 billion over 5 years was however not replicated in the following pages of its framework, and has no impact on the financial balances of the CAQ or on its debt. A new version of the framework has also been posted, I am told.