Two concepts of public debt are most commonly used: net debt and accumulated deficits. The first can be defined as gross debt minus the value of government financial assets. Accumulated deficits are net debt less non-financial assets. The federal government uses exclusively accumulated deficits; Ontario and Alberta net debt plus accumulated deficits; other provinces net debt only. Quebec determines its debt according to accumulated deficits (Update 13-14, p. C 15). The Ministry of Finance has agreed until now that “it is a simple concept that well reflects the financial situation of a government since it takes into account the totality of its assets and liabilities.” (BP 11-12, p. D 3). However, in public debates, it is the gross debt that is taken into account.
Let’s follow the advice of the Quebec Ministry of Finance and federal government practice in examining Quebec’s debt on the basis of accumulated deficits. The picture changes completely. On March 31, 2012, Quebec government debt sat at $114-billion, or 33 per cent of GDP, rather than 53 per cent (Update 13-14, p. C 3). As far as public sector debt, if we include Hydro Québec assets, this Crown corporation not only doesn’t add to the debt but reduces it. In fact, its net assets compensate for the largest part of the debt of the rest of the public, non-governmental sector (Hydro Québec financial statements, 2012.) The debt of the whole Quebec public sector is no longer 71 per cent, but 35 per cent of GDP: Less than half.
No doubt Quebec government debt levels are the highest among Canadian provinces, but it must be said that Ontario is catching up to us, as we are still dealing with the effects of 1997 accounting reforms that completely transformed how actuarial deficits in public sector pension funds are taken into account and in one fell swoop raised the debt by 20 per cent. So the debt isn’t exploding but, on the contrary, stabilizing after several years of prudent management.
THE WALTZ OF ACCOUNTING BILLIONS
Looking at the numbers provided by the Department of Finance, this stabilization isn’t obvious. In the 2013-14 budgetary plan, we saw that from March 31, 2012, to March 31, 2014, the debt would increase from $114-billion to $120-billion. In the economic and financial update of last March, this amount was reduced to $117-billion. What happened? Had the government already stared to “reimburse” the debt thanks to its budgetary cuts? Not at all! We are again dealing with a change in accounting conventions. It is worth explaining:
First of all the Société de Financement des Infrastructures locales, the agency financing local infrastructure, and the Société d’Habitation du Québec (Quebec Housing Authority) modified their way of accounting for subsidies as part of the debt. That is a total of $1.2-billion. Second, and above all, Hydro-Québec decided to adopt the International Financial Reporting Standards. It was initially thought that this would add $3.3-billion (BP 13-14, p. D 12), then $6-billion (Update 13-14 p. C 16) to government debt. But the Canadian Institute of Chartered Accountants, the authority on generally accepted practices, came to the aid of the government in three times delaying the date of applying the IFRS to the debt. So 2013-14 won’t be affected. Ouch !
And since Hydro One decided to adopt American accounting standards, less exacting than those of the IFRS, we think it’s fair to split the pear in half and eventually assign $3.3-billion, not $6-billion to Quebec’s debt. (Update 13-14, p. C15-16). Ouch again!
Meanwhile we are cutting $20-million from social assistance and $50-million or so from daycare to avoid, we are told, falling into the kind of chaos facing Greece or Spain.
Finally, we’ll conclude examination of the debt by adding to that of Quebec its portion of the federal debt, evaluated this time based on accumulated deficits. It no longer represents 46 per cent of GDP, but 32 per cent. So that if Quebec were to become a country, its debt would be 65 per cent of GDP. That would be quite manageable.