There are a ton of things the Government of Quebec could fix with money.
Posted at 5:00 a.m.
He could repair our crumbling infrastructure, starting with the suspension lines of the Pierre-Laporte bridge in Quebec, which are threatening to give way, as revealed by the program InvestigationThursday.
It could help children in difficulty who are sorely lacking in support at school, as denounced by the Québec Ombudsman on Monday.
It could reduce the delays before the courts which hinder access to justice, improve the services of the Youth Protection Department, invest in mental health, in home care… the list is long.
But there’s one thing that money can’t fix: inflation. It is not by writing checks or granting tax cuts that the government is helping households that are suffering from the general rise in prices.
By turning into an ATM, the government is attacking the consequence of the problem, not its cause. By fueling demand, it exacerbates soaring prices. It aggravates the problem instead of alleviating it. And it is hurting the efforts of central banks, which are using a horsepower remedy to put inflation back in check.
This week, the US Federal Reserve went into overdrive. She, who generally raises her key rate by 25 points, announced an increase of 75 points with a sharp blow, unheard of since 1994.
Between two evils, the Fed has chosen its side. She seems ready to pull out heavy artillery to prevent inflation from taking root as in the 1970s, even if the economy suffers the collateral damage of her offensive.
The question now is whether there will be a recession. What are the probabilities? 35%, answers the Minister of Finance, Eric Girard. 50%, advances the Prime Minister, François Legault.
The risks of a downturn are perhaps even higher if we are to believe the stock market, which is officially in a bear market, after a slide of almost 24% since its peak in January. However, the stock market is a precursor index. Since 1956, the American S&P 500 index has fallen by more than 20% on 11 occasions. Eight times, a recession followed. Only three times has the economy held up.
But politicians have nothing to do with the risk of storms. The electoral campaign is not yet officially in motion and the political parties are already embarking on promises of tax relief.
After having granted a payment of $500 to 94% of Quebecers in its March budget, a bill of 3.2 billion, the Coalition avenir Québec (CAQ) is now dangling another check which would be paid after the elections.
During its convention last weekend, the Quebec Liberal Party (PLQ) added to this by proposing a tax cut for the middle class that would bring in an average of $1,250 per person. In fact, Dominique Anglade wants to reduce by 1.5% the tax rate for taxpayers who earn less than $92,000 a year (and increase by 2% on incomes over $300,000).
On Monday, the CAQ reapplied, also mentioning tax cuts. And on Wednesday, she returned to the charge by immediately limiting the increase in the school tax to “2 or 3% on average” to help people struggling with the rising cost of living.
No doubt the promises of tax cuts are attractive to voters. After all, the tax burden is very heavy in Quebec. Heavier than it has ever been in 20 years. Heavier than anywhere else in North America.
If we are to lighten this burden, let’s start by reducing personal income tax, which is more harmful because it discourages work, rather than reducing taxes, particularly those on gasoline, which would run counter to the fight against global warming.
Except that in the current context, do we really have the means to lower taxes?
It is true that the province’s public finances are recovering from the pandemic better than expected… thanks to inflation! In the short term, rising prices bring more revenue into state coffers. But wait a bit! The costs will come next, when it is necessary to negotiate the salaries of the employees upwards. Or when rising interest rates will drive up debt service: every 1% increase in rates represents an additional cost of $553 million per year.
Even though public finances are doing better than expected, Québec still has a deficit that could worsen in the event of a recession. Politicians should therefore think twice before promising tax credit cuts when our public services are already heavily mortgaged.
It is not because there is a clearing above our heads that we must go for a boat trip ignoring the black clouds on the horizon.