We often mention the limits to comparing the income gap between Quebec and Ontario, if only because of the cost of living differential, the extent of Quebec social programs and the depth of the redistribution mechanism. But this goes into explaining the difference in tax burdens between the two provinces. What about the other gap, that of wealth?
First, we still have to compare ourselves to something and here Ontario is a natural base, given the commercial ties that bind us and the intensity of competition between the two economies. And do we instead want to compare ourselves with this unfavorable wealth gap of 52.3% between Quebec and the United States? Or that of 23.1% with the so-called advanced economies?
In other words, if this little comparison game may seem futile to many, an approach based on opportunity cost brings it a certain relevance, even a certain value. The Research Chair in Taxation and Public Finance (CFFP) estimated that in 2022, if there had been no wealth gap with Ontario, Quebec would have collected around $16 billion in independent revenue. additional, enough to get out of the equalization system. “This sum could have been used to make up for the loss of equalization [13,7 milliards de dollars en 2022-2023], to better finance public services, to reduce taxes or even a mixture of the three. In addition, based on the proportions of the components of GDP in 2022, the catch-up in real GDP per capita would also have resulted in a recurring increase in wages estimated at $9,000 per employee,” the analysis reads.
Which can only encourage you to continue the exercise. Certainly, for as long as GDP statistics have existed, “Quebec has always had a lower real GDP per capita than Ontario. In 1961, the gap in living standards observed was around 30%,” recalls the Chair. However, Quebec still managed to reduce this gap by 8.1 percentage points (to 14%) between 1990 and 2022, compared to 4.5 points (to 15.2%) with Canada and its provinces. oil companies.
Ambitious targets
But as for the targets retained by the Legault government, the hardest part remains to be done in the march towards reducing the gap with Ontario to less than 10% by 2026, and towards its elimination in 2036. The conclusions of the CFFP are speaking. If the gap were to fall to 12.8% in 2023, according to the most recent statistics from Quebec and Ontario in terms of real GDP growth, current budgetary data indicates that it will be 12% in 2026. Relatively to the 2036 target, still based on the gap in real GDP per capita, “the trend analysis since the economic peak of 1990 reveals that the “time” factor alone will not be sufficient to fully close the gap […] A gap greater than 10% would still be present in 2036.”
Although the Quebec government’s targets can easily be described as ambitious, the exercise still makes it possible to guide the choice of economic policies. And here, we see that the Quebec approach does not come naturally. The effort must come at 80% from the increase in productivity, at 10% from the increase in the active population pool and at 10% from the employment rate, we remember in Quebec. The authors of the CFFP analysis are not without emphasizing, in broad terms, that “in the current economic context, increasing productivity growth will not be easy in Quebec. Moreover, if in recent decades the gap in living standards has diminished, the productivity gap has tended to increase.
And collective well-being?
Which in no way reduces the importance of stimulating Quebec’s potential GDP in the exercise of reducing the gap. In particular by an increase in what economists call capital intensity per worker, which urges encouraging investment in fixed capital by businesses through targeted interventions.
But more than anything – what the Center on Productivity and Prosperity continues to hammer home – in 2021, more than 80% of the sums allocated in the form of tax credits targeted employment, de facto financing part of the related salaries. An approach that the Center described as aberrant, particularly in the context where the issue of labor scarcity is slowing down economic growth and reducing the effectiveness of this tax assistance almost to zero, he said. we have already written. “An important in-depth reflection will have to begin to get the government apparatus out of its logic of job protection and growth in the size of companies in terms of economic development,” estimates the Center in its 2022 report.
In order to enrich this reflection, the independent economist Jean-Pierre Aubry recalls in an email that since the 1980s, public policy research has been more focused on maximizing collective well-being (per capita) than on maximizing GDP (per capita). “In a way, we can say that Quebec, Canada and other countries such as the Scandinavian countries are more efficient in producing well-being for their entire population with relatively less GDP per capita than the UNITED STATES. In this period when we are more aware of environmental constraints, it is a good thing to move away from a growth model where collective well-being would be more linked to overconsumption made possible by overproduction… suddenly stimulated heavy subsidies.