In recent months, governments have had to spend astronomical sums of money to counter the effects of the pandemic on the economy and on society. In Quebec, the projected deficit for the current fiscal year is $15 billion, a historic high. Even if we set aside this year’s deficit, we will come out on the other side of the pandemic with a structural deficit of between $5.5 billion and $7 billion a year. This deficit will need to be reabsorbed as soon as possible. Continuing to pile up debt at such a rhythm after the pandemic could compromise the health of our public finances and shift a heavy burden onto the shoulders of subsequent generations.
When government lives within its means, it guarantees the sustainability of taxpayer-funded public services, all while creating a feeling of confidence that favours private investment and economic growth. The zero-deficit target gives the government guidelines when evaluating a potential new expenditure: If this limit did not exist, no spending would ever seem superfluous.
Thankfully, the current provincial government has expressed its desire to return to a balanced budget in five years, as required by provincial law. But to achieve this, should it control spending, or raise taxes?
The income tax burden of Quebec taxpayers is already higher than that of all other Canadian provinces except Nova Scotia. If we take into account total tax revenues collected by all levels of government, Quebec takes the title as the province with the highest tax burden (38.9 per cent of GDP) in Canada. And compared to the members of the OECD, Quebec’s burden is higher than that of 27 out of 37 countries. Increasing the tax burden in Quebec would further undermine the province’s competitiveness and could slow down the economic growth than we need to maintain and improve our standard of living.
In terms of expenditures, Quebec is among the Canadian provinces with the highest level of program spending, corresponding to 22.2 per cent of its GDP in 2018-2019, compared to the Canadian average of 18.6 per cent.
While these data are from before the pandemic, one thing is clear: Quebec taxes and spends far more than the Canadian average. Yet there is no indication that the services provided by the Quebec government are of such high quality as to justify spending more than the other provinces. The return to a balanced budget must therefore be accomplished through spending control.
In 2008-2009, the federal government under Stephen Harper set up an expenditure review committee whose purpose was to reduce the deficit and get out of the economic crisis that had shaken the planet.
The target for spending reductions was clear: Each department had to present proposals aiming to identify savings of 5 per cent to 10 per cent to include in the following annual budget. The different departments had to increase the efficiency of their programs, in order to improve performance per dollar spent. Moreover, by establishing a savings target for each department or agency to hit, it became easier to compare and evaluate the merit of each of the proposals.
In the end, this committee generated recurring savings of over $5 billion and contributed significantly to the government’s ability to balance the budget. Moreover, 70 per cent of these savings came from reductions in operational expenditures and administrative procedures, not from programs themselves and services provided to the population. In addition, it’s clear that Quebec has more civil servants per capita than the other Canadian provinces.
The past year has been difficult both for Quebecers and for Quebec businesses. The provincial government’s record budget deficit was inevitable. But in order to ensure our longer-term economic health, a standing expenditure review committee needs to be put in place so that Quebec can return to a balanced budget as soon as it can.
Miguel Ouellette is Director of Operations and Economist at the MEI and the author of “Quebec Must Set Up a Standing Expenditure Review Committee.” The views reflected in this op-ed are his own.