Quebec’s debt now at staggering 54.3% of GDP

editor robert

10 years ago

Social security programs might be affected

According to a recent report released by Montreal’s Center for Productivity and Prosperity (CPP), Québec is slowly sinking deeper and deeper in debt with no end in sight.

“In Québec, the issue is not so much the size of the government’s debt, although its size provides some cause for concern,” said CPP director Robert Gagné, “…but the real issue is the context through which it has taken on such a crushing amount of debt.”

As a result of the recent report, alarm bells are ringing throughout the province’s Treasury Board, as financial planners are forced to deal with the evidence of a growing debt spiral that’s being created by the government’s recurring budget deficits.

Beyond the debate that continues to surround the concepts that used to determine the size of the debt, Gagné believes that the real problem is the government’s inability to control the spending that continues to create these deficits.

As the Quebec government continues to accumulate deficits that go back to the early 1970s, the province is continually driving itself further into debt. According to Gagné, the end result is that the good debt that was taken on to finance its capital investments is gradually being converted into bad debt that does little more than finance the government’s ongoing programs.

Based upon recent budget figures, that Québec’s debt is systematically higher than debt in other Canadian provinces.

When compared with debt figures in 31 other nations who happen to be members of the OECD, only nine of those nations, including Portugal, Italy, Greece and Spain, have a higher debt load than Québec.

Although the report tries to skate around the issue of the European debt load, it does not neglect to note that all four of those countries are already in deep economic trouble.

Although the province’s debt has been a fact of its political life since the 1970s when the Parti québécois was first elected, the original amount reflected little more than 10 per cent of the province’s gross domestic product (GDP)—an easily-managed obligation.

In the more than four decades since, Quebec has relied on international financing to pay for some, if not all of its assorted infrastructure projects. During that period, the province’s debt soared to 54.3 per cent of GDP.

Part of this increase is due to accounting reforms introduced a few years ago. Quebec’s debt nonetheless increased some 400 per cent before the protocols that define the size of its debt.

While current low interest rates lighten burden of servicing Quebec’s debt, the Couillard administration must still devote a considerable amount of its budget ($11 billion and counting) to pay interest that could otherwise have been used to stimulate the economy and to replace decayed and decrepit infrastructure (Turcot Exchange = $3.5 billion) that is long past its best-before date.

After the Parti québecois administration introduced the Balanced Budget Act in 2001, the provincial government maintained a certain amount of budget discipline—until the 2008 financial crisis, when it went it back to foreign bankers for more money.

After passing an amendment that permitted more deficits, in order to stimulate a stalled economy, all the province’s debt indicators began to rise. The government subsequently ran an increasing number of deficits with a corresponding increase to its total debt burden.

“Reaching a balanced budget must remain a priority for the Québec government,” urged Gagné. “As the government plans to invest some $90 billion in the province’s infrastructure over the next several years, the pressure on the province’s public finances will continue to grow and it will become more and more difficult to attain a balanced budget.”

Gagné believes the province must bring back its Balanced Budget Act if it wishes to eliminate its deficit history and begin to manage its debt, the 40-page report concluded. If the government is serious about its determination to maintain a balanced budget, it said, “…it will have to set clear goals, and what’s most important, respect them.”

“First of all, the act should be applied more strictly and it should prohibit the government from running any more budget deficits,” he continued.

On the other hand, he also believes that it might be worthwhile to afford the government more flexibility to respond to economic fluctuations over which they have no control. As the law still forces the government to pay down its deficits within five years, the current administration will be forced to exercise serious discipline during hard times as it begins to extricate itself from ongoing financial strictures that continue to plague the Western world.

To prevent future administrations from evading its edicts, the report recommends revising the Balanced Budget Act to bar future governments from suspending or amending the law without first forging a broad political consensus to do so in the National Assembly.