In three years, at the rate things are going, Quebec will no longer have a deficit. State revenue minus expenses will be zero. Hallelujah!
Admit that this observation is astounding after the enormous impact of the pandemic on our public finances. We thought it would take a generation to get by (let’s forget the federal government for now).
I know, this is not what emerges from Eric Girard’s mini-budget. What emerges is that the deficit has shrunk to $ 6.8 billion this year (2021-2022), and will rise to $ 5.5 billion next year, then to $ 4 billion over the next three years. .
This annual deficit of 4 billion is qualified as structural, that is to say permanent, in a way, which remains regardless of the economic situation. Deficits that it is important to tackle, by cutting spending, for example.
Why then am I talking about a zero deficit? Because in three years, the entire deficit of $ 4 billion will be attributable to the payments we collectively make into the Generations Fund to reduce our public debt. Without these payments, no deficit.
Yes, but is it not an essential objective to reduce our heavy debt? Absolutely, but a question arises: until when should this famous debt be reduced?
15 years ago, Quebec set itself the long-term objective of lowering its gross debt to 45% of GDP or less. Now, you know what? Despite the health crisis, this objective will be reached as of next March, predicts the Quebec Ministry of Finance.
More precisely, our gross debt of 220 billion will be equivalent to 44.3% of GDP on March 31, 2022, a figure which will fall to 42.9% in three years, in 2025. The decline is major, knowing that we were at around 54% of GDP between 2013 and 2015.
Hence my question: now that this 45% objective has been reached, that Quebec is less indebted than Ontario, that lenders grant Quebec the lowest interest rate of the provinces in Canada except one, given its situation enviable, is it really necessary to continue to cut our spending to reduce our debt further?
Shouldn’t we let natural GDP growth (the denominator of the equation) gradually reduce our relative debt?
In his minibudget, the Minister of Finance, Eric Girard, judges that “reducing the debt burden remains a priority”.
According to him, this objective “creates a climate of confidence specific to private investment and increased productivity”. It is necessary to face the costs of aging, to finance our public infrastructure and to fight against climate change. Or to counter a future slowdown.
Last summer, Eric Girard called on private economists to advise him on these targets, among others. Their suggestions will be taken into account in the budget for next March.
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However, Quebec’s budgetary situation remains problematic. The projected growth in spending over the next four years (3.5%) is higher than that in revenues (2.8%), which will end up causing us serious problems.
Eric Girard has nevertheless accustomed us to nice surprises, thanks to cautious forecasts. In the budget of last March, he projected a structural deficit of 6.5 billion, but this deficit will ultimately turn out to be 2.5 billion lower, to 4.0 billion, according to the minibudget. About 80% of this deflation comes from the revenue boom, thanks to the strength of the Quebec economy, and 20%, from the transfer from Ottawa for daycares.
And verified, the minibudget has forecasts of real GDP growth a little more modest than the average of the private sector over 5 years (2.9% per year instead of 3%), which can give it a small cushion.
The Minister of Finance hopes that this boom in the economy will continue, which would make it possible to further significantly reduce the so-called structural 4.0 billion, a more joyful avenue than a cut in spending.
That said, this growth will have to be there if Quebec wants to close the 12.9% standard of living gap with Ontario within 15 years. A gap favoring Ontario has existed since 1926, says the minister (it was 16.4% in 2017).
To achieve this, the government must find solutions to the problem of the day, namely the labor shortage. The economic statement does offer relevant measures, but three of the five targeted sectors are in the public sector (health, education, daycare), as well as two-thirds of the funds. However, in the current context, the staff that we attract into the public sector, even if it is essential, reduces the workforce available in the private sector, which creates wealth.
Yes, the minister will help the construction, engineering and computer sectors to fill their labor shortages, but not really the others. And it does not address our chaotic management of immigration, which is essential in this issue of shortage.