April 2007 will mark the fourth anniversary of Jean Charest’s election as premier of Quebec. In the autumn prior to the election, a Quebec Liberal party congress had adopted an “Action Plan for the Next Liberal Government.” A year after the election, the new government published a “Modernization Plan.” With rumours of a fall election, Quebecers are wondering: Has the Quebec Liberal government kept the promises it made in those proposals?
Taxes and public finances
Taxes were the area where the 2002 Action Plan was most explicit: “Beginning with the very first budget it tables, a Quebec Liberal Party government will launch a plan to reduce personal income taxes by $1 billion annually over a 5-year period.” This promise has not been kept. The Liberal government’s first budget, introduced on June 12, 2003, contained no tax cuts. The next three budgets cumulatively reduced the tax burden by about $626 million (at the end of the 2006-2007 fiscal year). This, compared to the $3 billion required to meet the pledge in the Action Plan (if one leaves out the first budget), amounted to about one-fifth of the promised objective.
The only reductions in the last four years come not from a decrease in taxation rates but from the effects of simplifying the tax regime (merging the general tax regime and the so-called simplified one, starting January 1, 2005) and from introducing a $500 deduction for workers (rising to $1,000 on January 1, 2007).
In its official documents, the government inflates personal income tax cuts by adding refundable tax credits and amounts resulting from the indexing of tax brackets. The tax credits, related mainly to the new child support and work premium programs, consist of subsidies to families and low-income wage-earners. They are distributed even to persons who pay little or no tax (this is what “refundable” means). It is thus misleading to refer to them as a tax cut. As for the indexing that existed in the tax system before the current government was elected, it merely prevents real taxes from rising with inflation, and it is obviously incorrect to regard this absence of an increase as tax relief.
In terms of expenses, real per capita program spending under the Charest government continued rising as it had started to do late in the first of two recent Parti Québécois mandates, though at a slower pace. Since 2003-2004, it has gone from $6,445 to $6,651 (at the end of the current fiscal year). It is true that the ratio of program spending to GDP fell from 18.1% to 17.7% between 2002-2003 and 2005-2006 (with a forecast of 17.6% for 2006-2007). However, this reduction is due solely to the rise in GDP (with real spending up); the two preceding Parti Québécois governments presided over an even greater reduction in the ratio, which had stood at 21.3% in 1994-1995 and 18.9% in 1998-1999.
In fact, and even excluding the losses of the Société générale de financement, two of the last four years have been marked by slight deficits. The accumulated surpluses (providing for financing of potential future deficits, in accordance with the Balanced Budget Act) stood at $1.177 billion on March 31, 2003, but had fallen to $155 million as of March 31, 2006. In addition, because of capital spending, the public sector debt has kept on rising since March 31, 2003. The debt has nevertheless fallen as a proportion of GDP (from 74% to 67% in the last three years) and the main credit rating agencies have raised the government’s rating.
Re-engineering the state
The Quebec Liberal Party promised a lightening of government structures (including the abolition of certain bodies) and the re-assessment of some programs.
The government specifically pledged to replace only one civil servant out of two as they went into retirement. Indeed, the number of civil servants, after peaking at 75,800 in 2003-2004, has fallen by 2,500 (in full-time equivalent) since then, with the goal being a 20% reduction over 10 years.
In terms of government bodies themselves, 16 were officially abolished by the Charest government. However, in about half the instances, the responsibilities of were transferred elsewhere in the government apparatus. Moreover, since other entities were created to administer new programs, the effect has been even more modest. On June 6, 2006, the government Web site presented a list of more than 200 agencies, boards and commissions. Abolishing about 20 more of these is still planned, with the list including the Société nationale de l’amiante (national asbestos corporation) and the Société nationale du cheval de course (national racehorse corporation).
The Quebec Liberal Party had not promised a drastic reduction in the role and size of government even though certain left-wing opponents accused it of seeking “to dismantle the Quebec state.” It did, however, promise to cut taxes and lighten the weight of government. Even by this yardstick, it must be concluded from this brief summary that the results have been modest and ambiguous at best.
Tasha Kheiriddin is Executive Vice President of the Montreal Economic Institute.