In his letter of February 26, published in The duty, Luc Godbout encouraged the government to plan a return to balanced budget in the not too distant future and to clearly explain to the public the benefits of following such a plan, even if this implied respecting certain constraints in terms of provision of services to the population. For my part, I hope that before defining such a plan, we will carry out a much more in-depth evaluation of the good and the less good sides of this approach used over the last ten years to define targets for reducing government debt and to achieve these targets.
The main target that the government wishes to achieve is formulated according to the ratio of net to GDP. Net debt is made up of two components: debt linked to real estate assets (collective infrastructure) and that linked to the accumulation of past deficits. The size of the first component currently represents an amount of nearly $100 billion, or nearly 45% of the total amount of net debt, the value of which is nearly $215 billion.
Given this high proportion, we would have expected that, when we talk about monitoring the target for net debt, we are talking in a good proportion about the desired evolution of the debt which is linked to real estate assets. In fact, in Mr. Godbout’s text, we mainly discuss the budgetary surpluses (in the sense of the public accounts) that the government must achieve to reduce the accumulation of past deficits, and that these surpluses should reach approximately $3 billion per year ( or the size of payments to the Generations Fund) in a not too distant future. In fact, in Mr. Godbout’s text, the words “infrastructure” and “assets” are not used.
However, one of the major problems that the Quebec government currently has is that its infrastructure is in very poor condition and that using its approach to gradually reduce the debt burden while allowing an increase in the ratio of real estate assets to GDP has failed over the last 10 years. There should have been a marked improvement in the state of its infrastructure, and this was not the case. In fact, one of the reasons for achieving the targets for the ratio of gross debt to GDP or for the ratio of net debt to GDP was the government’s choice to invest less in its infrastructure than implied by its original target for the ratio of financial assets to GDP.
Opting for the same approach risks leading us to the same disastrous result and leaving future generations with infrastructure in very poor condition. Such a result goes completely against the principle of fairness towards future generations, a principle which is at the very basis of one of the objectives of the major project of reducing the government’s debt.
The idea of regularly running budget surpluses (in the sense of public accounts) to reduce the ratio of cumulative deficits to GDP, the idea of having a target to guide us and the idea of having both a framework legal to encourage the government to follow this target and a certain flexibility to follow this target, all that is very good.
However, to clearly define the debt reduction targets and to make the right choices between putting on the brakes and putting on the accelerator, or to resolve the squaring of the circle, as Mr. Godbout says (“resolve the situation deficit, a portion of which is structural resulting from certain government initiatives, and doing so without increasing the burden of taxation or affecting the basket of public services), it seems to me very important to make these choices in a long-term context.
Here is an example inspired by what happened between 2014 and 2016. If the government wishes to reduce its education budgets given the budgetary constraints it imposes on itself and if this choice pushes teachers to retire much earlier , this budgetary measure would be much less attractive in a context where we plan to face a shortage of teachers for the next 10 or 15 years.
It therefore seems very important to me that the next five-year budget plan be formally inserted into a long-term budget plan. Unfortunately, I doubt that the 2024 budget which will be published in ten days will be published. But it would be good if the 2025 budget were.