The current inflationary surge, which has been under pressure for several months already, is not without raising concern among the population.
Worry, but also a feeling of unreality. You have to go back to the late 1980s to see inflation rates approaching 5%. And it’s been almost 20 years since inflation has not exceeded 3% in Canada. We lived not only in a world where interest rates were very low, but also where inflation was low and tightly controlled.
The consensus is that this rise in inflation is temporary. In its January monetary policy report, the Bank of Canada estimated that inflation would be around 5% at the start of 2022, declining fairly quickly to around 3% by the end of the year, as that the supply disruptions that appeared during the pandemic would fade. However, it will take two years, which probably takes us towards the end of 2023, before inflation drops to 2%, the Bank of Canada is now telling us.
On Friday, the Quebec Liberal Party’s finance critic, Carlos Leitão, a former banking forecaster, warned us that the current inflationary phenomenon would not be temporary as we thought. We will see on Tuesday what the CAQ Minister of Finance, Eric Girard, reads in his budget.
In this election year, the political class is deploying a lot of imagination to find ways to reduce the effect of inflation on the population.
The PLQ and its leader, Dominique Anglade, propose to permanently eliminate the Quebec sales tax (QST), of 9.975%, on basic necessities such as soap, shampoo and drugs sold without a prescription. The exemption would also affect electricity rates.
Abolishing taxes or reducing them—or even freezing tariffs—are eye-catching and popular measures. But permanently reducing the revenues of the Quebec state is not the idea of the century. Especially when we know that enormous financial challenges are looming on the horizon, in the reform of the health network, the completion of the network of daycare services or the improvement of the education system.
The Parti Québécois (PQ) is proposing a “purchasing power allowance”, modulated according to income, which would only be paid to households whose income does not exceed $120,000 and to single people who earn $70,000. $ or less.
The PQ also proposes freezing the rates of state corporations, including Hydro-Quebec. However, one day or another, they have to be adjusted, which can cause price shocks. As for the Hydro-Québec rate freeze, it is a regressive measure if it extends to all residential subscribers, since it favors the owners of ” monster house » and other large consumers of electricity.
The worst of the measures suggested to us comes from the Alberta premier, Jason Kenney, and is taken up by the Conservative Party of Quebec: that of a reduction in gasoline taxes. Part of the reduction would go into the coffers of the oil companies. In addition, it is the owners of gas-guzzling vehicles that the state would benefit the most. When we know that Quebec is barely managing to reduce its greenhouse gas emissions, that is really not the message that needs to be sent. Either way, prices at the pump, driven by the planned increase in carbon pricing, are set to increase over the next few years.
Rather than a general allowance, Québec solidaire (QS) is proposing an increase in the solidarity tax credit. This is essentially the measure that Eric Girard predicted in his latest financial update. QS also offers a rent freeze. It is true that the CAQ government treats the housing crisis with indifference; the Act respecting the Administrative Housing Tribunal, both its letter and its spirit, should at least be respected.
Due to the strong economic recovery and also inflation, government revenues will exceed the most recent forecast by several billion. François Legault has indicated his intention to pay a sum — he mentioned $150 — to all Quebecers. In the current context, the state can afford to be prodigal. This one-off assistance should, however, vary according to the income of the individuals. Someone making $300,000 doesn’t need that $150 check.
Note also that, for Quebec alone, each percentage point of inflation is equivalent to approximately $3 billion in household spending. Beyond the short term — and an election deadline — it is illusory to think that any State can compensate its citizens who see their purchasing power eroded because of a galloping inflation.