“We have a budget that is largely in deficit,” François Legault said on Sunday, reiterating that salary increases agreed in the public sector would partly contribute to these larger deficits than expected. The return to equilibrium in 2027-2028 would even be at risk. But with a higher deficit, shouldn't the Prime Minister also question his decision to cut taxes this year?
The Coalition Avenir Québec (CAQ) tax cut in 2023 applies to the first two tax rates: the rate of the first tranche increased from 15% to 14%, covering the first $49,275, and the rate for the second tranche increased from 20%% to 19% on income from $49,275 to $98,540. This decision means the Quebec government is missing out on $1.7 billion annually.
Minister Eric Girard may explain that this tax cut will be financed by a reduction in payments to the Generation Fund, but the fact remains that he knows… This is a political decision. The decision to review payments to the Generation Fund could have benefited from additional investment in public services.
And that money could also have enabled the Quebec government to maintain higher revenue levels in an increasingly perilous fiscal context: government spending has never been higher; income growth slows while the economy stagnates; and the deficits will be larger than expected.
Record spending for several decades
Even before the Quebec government knew the extent of the additional costs associated with negotiating with public sector workers, it knew that its spending was reaching record levels and that its revenue growth would slow. According to the Association of Quebec Economists (ASDEQ), the Legault government must therefore raise the bar and present a plan in its March budget to quickly return to zero deficit.
In a pre-budget opinion presented in recent days, the ASDEQ public policy committee reiterates that Quebec must have a credible plan in place for the recovery to continue. The economic plan is an opportunity to quickly return to the fiscal balance that prevailed before the pandemic.
The committee emphasizes that it is a question of intergenerational justice. In 2022-2023, with the exception of the pandemic year, the level of government spending relative to GDP has never been higher. And with salary agreements in the public sector, this level will be even higher in the coming years.
Portfolio spending, which accounted for 19.4% of GDP at the beginning of the century, now reaches 25.2%. Before the pandemic, per capita spending in Quebec was 6% higher than the Canadian average. Today it is 14.5%.
At the same time, group sales growth is weakening. The average increase over five years, from 2018 to 2022, was 6.1%, while the average growth forecast for the next five years, from 2023 to 2027, is 2.9%; Never seen it in 30 years.
Technical recession
According to ASDEQ, Quebec is in a technical recession with two quarters of negative growth. In addition, forecasts from Desjardins and the National Bank show that there will be no more economic growth in Quebec in 2023 and 2024.
This lower economic growth will be directly reflected in slower growth in the Quebec government's own revenues. In addition, the decline in equalization payments in 2024-2025, partly due to Quebec's good economic growth in recent years, will slow the growth of federal transfer revenues. ©derals.
Economists at the ASDEQ Public Policy Committee believe the state is in a time of choice: We must abandon low-priority activities and begin a transformation. like in Ottawa and Ontario) and use eco-fiscality to achieve our climate goals. A major change needs to take place.
Quebec has the right to spend more than other provinces if its citizens want and are willing to bear the necessary tax burden, the opinion says, but the growth rate of spending observed between 2017-2018 and 2022 was 7.4%-2023 is not sustainable.
Wait before building new infrastructure
The committee also draws attention to infrastructure, echoing a recent analysis by the Interuniversity Research Center in Organizational Analysis (CIRANO) on the major infrastructure maintenance deficit in Quebec. Despite significant budget increases in Quebec's infrastructure plan, the deficit in maintaining provincial infrastructure assets has doubled in the last six years, and the situation of municipal infrastructure is equally worrying.
The Committee reiterates that these assets need to be renovated and maintained before considering the construction of new facilities. We also need to make our infrastructure more resilient to adapt to climate change. […]. Work to maintain and repair existing infrastructure should take priority over the construction of new infrastructure.
The Legault government took power in 2018 with budget surpluses, a legacy of the Leitao-Coiteux years, which were marked by cuts and accelerating economic growth. Today, almost six years later, it is clear that Quebec's fiscal situation is deteriorating.
The coming years will be difficult due to the aging population and growing healthcare needs. And if it is true that the new collective agreements in the public sector will cost the State more, the Legault government must also question the relevance of the tax cuts The pressure is increasing due to the climate challenge. Isn't it time to put the cards back on the table in Quebec regarding budget decisions?