Quebec: A poor little rich province
March 20, 2010
MONTREAL–After Alberta's finance minister, Ted Morton, delivered a deficit budget last month, he vowed to visit university campuses and tell students, "You and your parents are spending a bunch of money to help Quebec, and they're paying half the tuition you are."
Not only do Quebecers pay less tuition, they also pay far less for electricity, drugs and daycare. Quebec offers a more generous parental leave program than elsewhere, and higher corporate subsidies.
It also has higher taxes.
These generous perks are coming into sharp focus here in Quebec for another reason: the province's colossal debt, which some are calling an emergency.
"I don't think there is any place in the world panicking as much on the question of debt as Quebec," said economist Louis Gill.
The reason for this, as Quebec prepares to unveil another deficit budget March 30, is simple: it is Canada's most indebted province.
Worse, using the measurement of the Organization for Economic Co-operation and Development, it's also the fifth-most indebted jurisdiction in the industrialized world, far beyond Canada and the U.S.
Its debt is at 94 per cent of its gross domestic product, just ahead of Japan, Italy and Greece, whose debts exceed their GDP, according to numbers calculated by the provincial finance ministry.
As many call for drastic action, indications are that Premier Jean Charest will go slow, raising the sales tax an extra point in the future, in addition to the one point it will go up on Jan. 1, 2011.
Now, people are making the link between the province's fiscal problems and Alberta's oilsands, which Quebec politicians criticize for their effect on climate change.
After Ontario and Quebec skewered the lucrative oilsands at the Copenhagen climate-change summit in December, Premier Ed Stelmach pointed out Alberta paid $21 billion more than it got back from Ottawa during the worst economic downturn since the 1930s. "That cannot continue," he warned.
He was talking about equalization, the program that ensures public services are at a comparable level across the country. Quebec, a net recipient of federal funds, is its largest beneficiary at $8.5 billion.
While such criticism might be expected from outside Quebec, it's now also coming from within.
André Pratte, one of the province's most influential opinion-makers, wrote recently in La Presse: "If the oil and gas industry is obviously crucial for the Western provinces, it's also very important for the prosperity of the rest of the country, including Quebec."
In another editorial, he wrote, "Thanks (in part) to equalization, Quebec pays for programs that other provinces don't have the means to offer."
Four of Quebec's most renowned economists, tapped by Finance Minister Raymond Bachand for advice on handling debt, agreed in a report last month.
Quebec offers $17 billion, or 26 per cent, more in services than Ontario, while its GDP is 14 per cent less, they observed.
That means even though Quebec is poorer, it spends far more.
"There is a sense of emergency," said task force member Pierre Fortin, a University of Quebec at Montreal economist. "People have become more fearful of public indebtedness than before."
Quebec's gross debt stood at $151 billion last fiscal year, or 49.9 per cent of its GDP. It will rise to 53.5 per cent this year. That compares to 30.1 per cent for Ontario and 4.2 per cent for Alberta.
According to the OECD measure, which includes Quebec's share of the federal debt, it's at $286 billion, even as the province offers services that others do not.
For instance, Quebec has instituted a $7-a-day daycare system. The program has been credited with increasing Quebec's low birth rate and women's participation in the workforce.
Another Quebec benefit: everyone pays less for electricity because of a government decree placed upon Crown-owned Hydro-Québec.
Even with higher income taxes, families in Quebec have it so good that University of Sherbrooke economist Luc Godbout co-authored a book in 2008 called Quebec: A Paradise for Families?
Quebec's families hold on to much more of their income than those in other provinces because of government transfers and cheap daycare, Godbout found.
"Quebecers choose to have a level of services way above their means," said task force member Claude Montmarquette, president of economic research group CIRANO.
Quebec is reluctant to raise electricity rates because that would increase the bottom line, significantly reducing its equalization payments, Montmarquette explained.
That, he believes, is "a bit like someone who says, `I won't search for a job because then I'll lose my social assistance.' It's a disincentive to making good decisions."
Gill, a retired economics professor at the University of Quebec at Montreal, rejects the OECD figure and says Quebec's debt is manageable.
He also takes exception to drawing a line between Alberta's contributions and Quebec's ability to provide services.
If the oilsands closed, he concedes there would be less money for transfers. But Quebec could maintain services by finding the cash elsewhere, he said – raising taxes for instance.
"We made the choice to have more extensive services," Gill said. "So it's normal we finance them."
"Well no, it's not a choice," Montmarquette argued. "Not when you don't have the means. That's why we're facing the wall now."