Quebec turning blind eye to need for reform – Five government reports have called for major structural changes – all were shelved

Since February, five well-documented and balanced reports commissioned by the Quebec government have called for major structural reforms in key areas of public policy. These were:

  • the Castonguay report on funding of the health-care system;
  • the Montmarquette report on fees for public services;
  • the Fortin report on business investment;
  • the Gagné report on tax assistance for the resource regions and the new economy;
  • the Pronovost report on the future of Quebec agriculture and agrifood.
  • These reports contain a number of recommendations that could give a major competitive spur to the Quebec economy. Among the key items are rapid elimination for all corporations of the capital tax to speed up investment, removal of barriers between the private and public sectors in our health-care system and introduction of the user-pay concept for certain public utilities such as water.

    As the National Assembly ends a light session, it is clear that in none of these cases has the government pledged to implement the main recommendations. We are left with only appetizers.

    A more active approach would have been preferable because time is running out. Quebec risks being confined in the coming years to anemic wealth creation while the emerging and developing countries push forward. Unlike those countries, we have done very little in the last few years to improve the competitiveness of our economy. Quebec has not yet taken the opportunity provided by recent economic strength to undertake significant reforms and stimulate its competitiveness.

    The uncoupling of growth between the world’s various economic zones has intensified at a record pace. The contribution to growth from the advanced countries (54 per cent of the world’s GDP) is in danger of soon falling behind that of the emerging and developing countries (already 46 per cent of world GDP). According to the International Monetary Fund, the advanced countries’ economic growth in the next two years will be one per cent at most, whereas the growth of emerging and developing countries will be closer to seven per cent.

    A number of advanced countries, including our own, have become sclerotic as we seek to preserve our so-called vested rights. Meanwhile, the dynamism of most emerging and developing countries goes well beyond mere economic catching-up. It has relied largely on implementing major structural reforms – and doing so in under a decade.

    We can point in particular to a nearly complete trade and financial liberalization, a sizable decline in public borrowing, and a privatization wave that has been successful when accompanied by a vigorous strengthening of the institutional and regulatory framework.

    These reforms, while far from homogeneous or perfect in these countries as a whole, have in general allowed for a massive influx of foreign direct investment, the achievement of substantial productivity gains and, increasingly, a high-value-added and ultra-competitive export sector.

    For 2008, Canada is expected to experience growth of about one per cent, in a scenario laden with the risk of downward revision because of the uncertainty linked to the economic and financial situation in the United States.

    We are not facing a sudden, momentary stock-market collapse but rather a real economy that must deal with a serious slowdown. Quebec is likely to experience economic growth below one per cent this year. Even if the economy picks up a little next year, this slump will not be able to hold back the enormous pressures that will come to bear on public finances.

    Let’s hope that current economic reality can overcome political straitjackets. Just as there is a consensus on the economic slump we are experiencing, whether we call it a recession or a slowdown, there is good reason to build a consensus on the urgency of undertaking the structural reforms that are needed for Quebec to become more dynamic.

    Dominique Vachon is an Associate Economist at the Montreal Economic Institute. She was a vice-president and chief economist at the National Bank from 1996 to 2002.

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