“Without changes in budgetary policy,” Quebec’s public finances follow a trajectory where “expenditures would systematically exceed revenues,” according to a new report from the Institut du Québec unveiled Monday, on the eve of the tabling of the provincial budget. The government is also on track to miss its debt reduction targets if it does not adjust its course, this report highlights.
Each year, the Institut du Québec undertakes the exercise of simulating Quebec’s expenditures and revenues for the next decade. The goal is not to “forecast” the budget, but rather to delimit the “sand square or the room for maneuver that the government has to make its decisions,” explains Emna Braham, general director of the Institut du Québec ( IDQ).
And this room for maneuver is diminishing, in view of the report. “What we are seeing this year is that, without intervention, state spending would increase more quickly than its revenues in the long term,” underlines M.me Braham.
If, in the short term, the salary increases granted to public service employees as part of the renewal of their collective agreements increase government spending, “in the long term, it is mainly other factors which will influence them”, notes the report. At the top of the list: the growth in health spending, which already takes up nearly 40% of Quebec government revenue, it is mentioned.
“We note that, despite the end of programs linked to the pandemic and the end of household assistance programs to cope with inflation, the level of spending remains higher than before the pandemic,” notes Mme Braham.
Quebec, a “debt” province
Faced with the “imbalance” between income and expenditure which would generate “a structural deficit in the longer term”, “Quebec is faced with an imperative for economic growth”, explains Mme Braham.
Both to generate the income necessary to be able to provide essential services to the population, but also to reduce the burden of its debt. “Because, despite all the progress we have seen in recent decades, Quebec remains a province that is in debt on a Canadian scale,” argues Ms.me Braham.
Under the Act to reduce the debt and establish the Generations Fund, which was updated last December, Quebec must respect two debt targets. According to this law, for the financial year 2032-2033, the net debt presented in the government’s financial statements cannot exceed 35.5% of Quebec’s GDP. And this ratio must drop to 32.5% in 2037-2038.
This is a “maximum limit” because, in reality, the net debt reduction targets are 33% and 30% of GDP respectively for these two years, as set out in the budget last year.
“Our simulations show that, without public sector salary increases, we achieve the first target, but we do not achieve the second. Whereas, when we take into account these salary increases, we do not achieve either of the two targets,” observes Mme Braham.
According to IDQ projections, the ratio of net debt to GDP could rise from 36% this year to 40% in 2039-2040, well beyond the target set by law. “Again, this simulation follows the natural trajectory of spending and income. What we are looking at is: what would happen without state intervention? » recalls the trained economist.
The general director of the IDQ also reiterates the importance of a “certain budgetary discipline”, which has, among other things, made it possible to deal with the pandemic. “This allows us to have the room to maneuver to deal with crises that are perhaps more serious than the slight slowdown we are experiencing today,” she concludes.