We would see this even better by using the method the OECD uses to compare the financial situation of its 34 members – the world’s most industrialized countries – that is net financial liabilities. Based on this, the average indebtedness of member countries was 70 per cent of their GDP in 2012. That of Quebec, considered as a country and calculated on the same basis, would drop to 58 per cent. That’s not bad, and it certainly isn’t Greece, which is at 146 per cent. A third ouch!
In fact, Quebec governments have succeeded, in recent years, in maintaining satisfactory budget balances. This would be much clearer if we stopped fiddling with accounting conventions.
EXPENDITURES AND REVENUE, A SIMPLE MODEL
Modifications of accounting rules hinder development of unbroken chronological series of revenue and spending. Significant accounting reforms in 1997 and 2006 (BP 11-12, p. I 13) and annual modifications for the past few years make inter-year comparisons very difficult if not impossible. Nor does it simplify things that two different measures of expenditures and revenue are used, separated from one another by about $20-billion. The lower one includes only program spending and debt service; the higher one consolidates all governmental operations (BP 13-14, p. A 21-22).
Faced by this, I have chosen simply to examine the situation each year, using consolidated expenditures and revenues calculated under that year’s accounting conventions, without worrying about assigning deficits or surplus to the Stabilization Fund or the Generations Fund, a trust fund that aims to reduce Quebec’s public debt.
Let’s put things into perspective. When the Liberals left power at the end of 1994, they left behind for that year a deficit of nearly $6-billion. That represented 3.5 per cent of GDP and 16 per cent of budgetary revenues. That was evidently untenable. In 1995-96, the new Parti Québécois government froze spending and was able to reduce the deficit from $6- to $4-billion. The succeeding government decided to give itself only two years to reach a zero deficit. This was made even more ambitious by the fact Ottawa was reducing transfers to the provinces, amputating in one blow $1.5-billion from Quebec’s revenues. To attain the zero-deficit objective on time, expenditures had to be radically cut – by 5 per cent. That led to early retirement of a great number of doctors and nurses. It would take the health-care system years to recover. But finally the objective was reached. After such efforts, successive governments have maintained budgetary equilibrium quite well. From 1998-99 to 2008-09, zero deficits were reached twice and four deficits were under a billion (except in 2008-09 when the deficit reached $1.3-billion). There were also four years of surplus, of which the highest reached $2-billion. If we add together the deficits and surpluses of the decade, we come up with a surplus of $2.7-billion (BP 11-12, p. I 13). Not bad!
At the end of 2008, the world financial crisis began and a recession came on fast. Canada and Quebec were hit too. Budgetary revenue stagnated, expenses, fed by stimulus programs, increased, which obviously meant deficits. But it’s all relative. Quebec’s maximum deficit was $3.2-billion, or less than one per cent of GDP, while that of the federal government hit 1.8 per cent, Ontario’s 2.5 per cent and that of the U.S. federal government 8.7 per cent (BP 12-13, pp. A 9, 14 and 19).
RETURN TO ZERO DEFICITS
But there was an outcry from everywhere: Avoid the American and European free fall and downgrades by rating agencies. In 2010, we resumed efforts to set a precise deadline to get back to zero deficits, at all costs, and to get there, we limited growth in expenditures. We nearly attained the objective in 2012-13 and we are aiming at zero for 2013-14. The PQ government that came into power in the fall of 2012 had to ascribe the cost of closing the Gentilly II nuclear plant to that budget year, and realized that a rise in doctors’ fees and in debt service costs imperilled the goal of a zero deficit in 2013-14.