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Should we celebrate the CAQ’s lower deficits?

Opinion piece featured exclusively on our website.

Last Thursday, Quebec’s Finance Minister presented his “mini-budget,” with the province’s economic recovery as the overarching theme. The key takeaway was that the deficit has been revised down to $6.8 billion, instead of the $12.3 billion forecast in the March 2021 budget.

To be clear, though, this reduction of the deficit is entirely due to higher government revenues. These are in turn mainly due to two things: robust GDP growth of 6.5%, and a $2.5‑billion increase in transfer payments from the spendthrift federal government.

We are therefore currently in an economic situation that has allowed for a reduction in the budget deficit of a few billion dollars. This is a good thing, to be sure. But can we then attribute this deficit reduction to the government’s sound management of taxpayer funds?

The short answer is no.

The CAQ government has spent an additional $1.6 billion of public funds since the March 2021 budget—not to mention the $4-billion structural deficit, which could actually increase with the plethora of new public spending programs and the current tendency toward more extensive economic interventionism. Not to mention, either, that since 2018, the number of public servants in Quebec rose by 13%, while the number of employees in the private sector only increased by 0.05%.

It’s hard to understand this patent lack of budgetary rigour—also on display in Ottawa, of course—given the fact that the economic recovery has been vigorous. It is quite simply a missed opportunity to start getting our fiscal house in order.

Where do government revenues come from?

The Quebec government’s increased revenues, excluding federal transfers, are primarily a result of the rising incomes of taxpayers. The plain fact of the matter is that Quebecers got richer in 2021.

Individual taxpayers are not the only ones who have benefited from this economic dynamism. Quebec companies have also gained ground, which had the effect of increasing Quebec government revenues by $1.7 billion compared to the March 2021 estimates.

The picture that emerges is clear. So far, the reduction of the provincial deficit has nothing to do with the sound management of government spending, and everything to do with the economic recovery.

Unsurprisingly, federal transfers also figure prominently in the composition of the current government’s revenues. Indeed, Quebec received nearly $30 billion from the federal government, a marked increase compared to what had been forecast in the most recent provincial budget.

Spending keeps rising

In other words, the government is receiving more money than expected from the federal government, and from individual and corporate taxpayers, but public spending keeps increasing. That’s not the path to follow if we want to one day regain control of the provincial debt—which, for those who haven’t been keeping track, has grown to over $294 billion.

To put that in perspective, that’s the equivalent of $34,241 per man, woman, and child in the province. Imagine having such a mountain of debt hanging over your head from day one. Quite the birthday gift!

Understandably, given the pandemic, the public debt was not among the top priorities of either the provincial or the federal government in 2020. But not everything can be chalked up to the pandemic. We need to stop brandishing this bogeyman to justify the lack of budgetary rigour that could well cause lasting economic damage.

The government needs to address the structural deficit in order to reduce the debt burden, for the sake of our children, and their children. It’s a question of intergenerational equity.

Even though the economic recovery is good news for Quebecers, we can and must demand more from the government. The minister must respect his estimates in the next provincial budget, and not let the billions of dollars taken from our pocketbooks melt like snow in the midday sun.

Miguel Ouellette est directeur des opérations et économiste à l’IEDM et Gabriel Giguère est analyste en politiques publiques à l’IEDM. Ils signent ce texte à titre personnel.

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