The tendency to put off difficult choices is as old as mankind. The temptation is particularly strong in a democracy where, for elected officials, it is necessary to know how to please the greatest possible number of its fellow citizens every four years. It’s worse when that date comes.
The main political parties running in the Quebec general elections wasted no time. As soon as the campaign was officially launched, they began to unpack measures to combat the recent surge in inflation and its impact on households. This inevitably raises all sorts of questions about the effectiveness of the proposed solutions as well as the government’s ability to pay the bill. But also to know how to distinguish between temporary problems and longer-term issues.
Basically, most governments can do little against inflation largely attributable to external factors, such as the COVID-19 pandemic, supply chain issues, soaring global energy and food prices, the invasion of Ukraine by Russia or climatic disasters, say the experts.
They can start, however, by avoiding undoing — through reckless spending increases and tax cuts — what central banks are trying to do with their interest rate hikes, which is to dampen the consumers and businesses until inflation is lower and more stable.
short term problem
But until that day — which the Bank of Canada predicts will be somewhere next year — they can still try to cushion as much of the shock of rising prices as possible, especially for the most vulnerable, these same experts say. .
Sending spot checks is a good way. A temporary reduction in consumption taxes is more difficult to target, observed the OECD at the beginning of the summer, even if, like Québec solidaire, it is proposed to limit it to food, clothing, medicine and repair. It’s that, for example, the rich and the poor don’t go to the same restaurants or as often, and that the repairs to their cars or their homes don’t cost the same either.
Backed by more rigorous management of public finances for 25 years and a recent marked increase in its revenues with the economic recovery and inflation, Québec also has a certain financial leeway for this type of measure, confirmed last month by the Auditor General. At least in the short term.
Longer term
It is in the longer term that things become more complicated. Here again, the Quebec government generally does better than you think, already estimated this winter the Institut du Québec (IdQ) in a study. If nothing were to change, it should be able to keep its deficits and debt under control at least until 2033 despite the impact of the pandemic and even the aging of its population.
But here it is, said the IdQ, how can we imagine that the Quebec government might not want to change course, if only to improve the health and care systems for the elderly that we have seen cracking everywhere in recent years , or to accelerate the green shift that Quebec is completely missing out on?
In this context, some permanent tax cuts would probably be feasible in the short term, if not a targeted measure against inflation. They would, however, restrict the government’s financial leeway in the long term.
And if we were going to dip into the payments provided for in the Generations Fund, as proposed by several political parties? After all, the reduction of the debt must not become an end in itself and will have to stop one day, had launched last December about twenty experts consulted by the Minister of Finance, Eric Girard.
At the time of the launch of the elections, Quebec seemed comfortably on track to achieve the targets set by law for 2026, both in terms of debt (37.7% of gross domestic product against a target of 45%) and accumulated deficits (15.4% of GDP against 17%). Is it necessary to continue to pay more and more money each year into a Generations Fund, the book value of which should approach 20 billion next year?
Agree, but that does not change the basic question, said our twenty experts. The sums that we would not pay into this mechanism aimed at establishing a little intergenerational equity would go where? To immediate needs or to the great challenges that those who leave will leave to those who stay, even as the aging of the population will cause healthcare costs to explode and incomes to fall?
myopic
It has been easier for forty years to increase government spending, particularly in the area of social policies, than to ensure that tax revenues keep pace, noted a study by the political scientist Olivier Jacques for the Chair in Taxation and Public Finance at the University of Sherbrooke and who looked at the case of 22 Western countries between 1980 and 2015.
Rather than resolving to slash direct services to citizens or increase taxes, we have generally preferred to shovel the problem forward by favoring cuts whose effects were not immediately felt, such as cuts in spending on education, in infrastructure or in research and development, or by increasing the debt, all measures that will be paid for by future generations. Subterfuge has also been used by developing social services offered by the private sector and by resorting to charging for public services.
In the study, you could see that Canada and Quebec were no exception.