Quebec avoids hard choices

Charest government puts off the big cuts until another day

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by L. IAN MacDONALD
The Gazette, Saturday, April 3, 2010

Within the exception of the health-care head tax, Quebec's budget narrative is one of hard choices deferred to another day, and others avoided altogether because the Charest government lacks the political courage to address them. Think, $7-a-day child care, part of the broken Quebec model that other provinces, notably Alberta, are subsidizing through equalization.

But first the good news - on the provincial deficit, which at $4.5 billion in the new fiscal year is only 1.4 per cent of provincial GDP. This compares very favourably with Ontario's deficit of $21 billion, four per cent of its output, as well as to Ottawa's $50 billion projected shortfall, which is three per cent of GDP.

Moreover, Quebec is moving much more quickly back to a balanced budget, which it is projected to achieve in three years, while Ontario is forecasting a return to balance in eight years. As for Ottawa, it expects a return to virtual balance, forecasting a deficit of $1.8 billion, a rounding error of one-tenth of one per cent of GDP, in five years time.

In terms of Quebec provincial debt, that's another story, and a more worrisome one in comparative terms. Quebec's debt is 53 per cent of GDP, by far the highest in the country, compared with just over 30 per cent for Ontario and Ottawa.

In terms of the effort to balance the books, while there is no increase in personal or corporate taxes, there is an increase in consumption and excise taxes, to go along with the health-care head tax.

By raising the QST by another point in 2012 on top of a one percentage-point increase next year, Quebec is fully occupying the two per cent tax space vacated by Ottawa when Stephen Harper cut the GST from seven to five per cent. Moreover, the 9.5 per cent provincial tax is a compound tax, on top of the GST, so the combined hit will be more than 14.5 per cent. This might not be popular at the cash register, but it is sound fiscal policy.

Then, Quebec is raising the gasoline tax by one cent a litre, and throwing in another 1.5 cents for Montreal to pay for public transit and infrastructure on the island. You could call this a carbon tax by any other name, but the fact is that the price of gasoline changes at the pump every day.

As for the health-care tax of $25 rising to $200 per person in two years, that's another matter. Either we have universal health care or we don't. As for charging for visits to the doctor, that might reduce unnecessary trips, but it voids the social purpose of the Carte du Soleil. And yet, there is a huge crisis looming in health care funding - the Health Care Accord transferring $41 billion from Ottawa to the provinces expires in 2014, and there is no chance it will be renewed.

As for the choices that have been announced but deferred, consider that university tuition fees, frozen at $1,700 a year since 1996, will increase by an unspecified sum in the fall of 2012, after the government consults with stakeholders. Gosh, that took a lot of courage. So Quebec university students will continue to enjoy a free ride for another two years, paying less than half what students do in Ontario.

And, wait for it, hydro-electric rates will be increased by 3.7 per cent a year in 2014, four years from now, after the budget has been balanced, with the proceeds from Hydro-Québec dividends going to the Generations Fund to help pay down the provincial debt. In other words, business and domestic hydro rates will be frozen for another four years, and then increased by the projected cost of living. The objective is to decrease the debt from 53 per cent to 45 per cent of GDP by 2026. Talk about heavy lifting.

Finally, the avoided choice of increasing the $7-a-day child care, which actually costs $49 a day. This is not an entitlement, and if the cost to parents were increased to only $10 a day, or only 20 per cent of the cost, the extra cash flow of $15 a week per person would reduce the deficit by nearly $200 million a year for Quebec's 240,000 public or non-profit days care spaces. This is why Quebec, with only 20 per cent of the kids, has half the daycare space in the country. The program costs $2 billion.

Make no mistake - $7 child care and $1,700 university tuition in Quebec are big topics of conversation in Alberta, which sends billions of dollars a year to Quebec via Ottawa through equalization, and is itself in deficit.

Albertans used to think of equalization as sharing the wealth, part of the price of peace in the federation. They don't anymore - not since Jean Charest started trash-talking the oilsands.

 
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