The billions in government aid granted to businesses over the last 25 years would not have contributed to increasing Quebec’s productivity, which is lagging behind other developed economies, according to a report from the Center on Productivity and Prosperity (CPP). ) from HEC Montreal.
Quebec lags behind in productivity compared to a sample of 19 economies from the Organization for Economic Cooperation and Development (OECD), according to the annual report “Productivity and Prosperity in Quebec” which is in its 14th year.e editing.
The report, released Tuesday, highlights that labor productivity increased by an average of 1% per year from 1981 to 2022. This is one of the lowest rates among developed economies. The productivity gap has thus widened and productivity is on average 31% higher in developed countries. In other words, each hour worked in Quebec generates $23 less gross domestic product (GDP), estimates the report.
The observation that Quebec is behind in terms of productivity is not new in itself. The director of the CPP, Robert Gagné, sees in this gap the demonstration of a failure of Quebec’s industrial policies over the last 25 years. “The sauce is bad, but we continue to produce the same sauce while telling ourselves that it will perhaps end up working,” laments the full professor at HEC Montreal.
The criteria for government aid no longer correspond to the challenges facing the Quebec economy, according to him. The report shows that in 2022, 80% of the sums allocated in the form of tax credits were allocated on the basis of employment. “Quebec is a society where the population is aging, where the labor pool is shrinking. »
Mr. Gagné judges that Quebec’s industrial policy has been counterproductive in attempting to identify sectors that deserved support. “We are attracting resources to a sector that bureaucrats have decided are promising sectors to the detriment of other sectors which could be just as promising, but which do not have access to this tax credit. »
The professor doesn’t have much sympathy for companies that argue they will invest elsewhere if they don’t get financial support from the government.
“In 2024, we can perhaps afford for some lame ducks to disappear,” he adds. This could free up resources for other businesses that need them and are not dependent on state aid. »
The report shows that fewer businesses are being created in Quebec than in Ontario. At the same time, fewer Quebec companies are ceasing their activities. The CPP comes to the conclusion that the entrepreneurial fabric is being renewed less in Quebec. “Zombie” companies remain in business for too long, despite their poor performance, thanks to state aid.
“The State is artificially keeping alive these businesses which perhaps normally would no longer be here, or would be closed or would be different,” deplores Mr. Gagné. The government maintains them in a kind of status which undermines our productivity, and therefore our standard of living. »
Too long-term help?
The professor believes that government aid can be useful for a start-up business, but he questions the relevance of granting aid for many years to the same business or industry. “The idea is not to stop everything and do nothing,” he explains.
The report gives as an example the aid granted to the multimedia industry, adopted in the mid-1990s. In importance, it remained the third tax credit intended for businesses in 2022, which represents aid of $355 million, according to the report. Mr. Gagné believes that credit allows the multimedia industry to attract coveted employees from the technology sector while these professionals could use their expertise elsewhere.
This is not the first time that the multimedia tax credit has been called into question. The credit has been criticized several times in recent years by Quebec businessmen who judged that it allowed the multimedia industry to engage in “unfair” competition to recruit technology talent.
The video game industry, for its part, defends that government aid is “profitable” for Quebec. In a memorandum sent to the Quebec Ministry of Finance last year, the Quebec Video Game Guild affirmed that tax revenues linked to subsidized jobs were 19% higher than the cost of the tax credit in 2021.
Mr. Gagné is not convinced. “Is it the role of the government, is it the responsibility of Quebec taxpayers, to eternally support an industrial sector which is, moreover, very profitable? » asks the professor.