Quebec Premier François Legault has a singular pet peeve.
Nothing seems to get his gander more than his province’s longstanding wealth gap with Ontario. Not the decline of French that he claims to lament so much. Not even Ottawa’s refusal to give him more control over immigration.
Since taking power in 2018, Mr. Legault has made closing the wealth gap with Ontario – as measured in per capita gross domestic product – his Coalition Avenir Québec government’s top economic goal. Mr. Legault often boasts of having shrunk the gap from 16.4 per cent to 13.5 per cent during the CAQ’s first term in office. He aims to further reduce the wealth gap to 10 per cent by 2026 and to eliminate it entirely by 2036.
The question facing Mr. Legault’s government is not just how to go about it, but whether the wealth gap with Ontario is the right yardstick to use to measure Quebec’s economic progress. After all, much of the recent reduction has stemmed from Ontario’s sluggish performance rather than superior economic growth in Quebec. Both provincial economies have been falling behind those of the United States and other developed countries.
Still, there remain areas where Ontario has a clear advantage over Quebec. More Ontarians than Quebeckers work in industries that pay above-average salaries. The work week is an hour longer in Ontario. Ontario’s capital stock per worker – a major factor in determining overall productivity – is 30 per cent greater than Quebec’s.
Quebeckers also retire earlier than Ontarians. The employment rate among Quebeckers between the ages of 60 and 69 was 37 per cent in 2022, compared with 43.8 per cent in Ontario. Women between the ages of 25 and 54 were more likely to be employed in Quebec (85 per cent) than in Ontario (78 per cent) in 2022, a result many credit to lower daycare costs in Quebec. Immigrants, however, had a lower employment rate in Quebec.
Earlier this year, CAQ Finance Minister Eric Girard asked some of his province’s leading economic thinkers for advice on how to help Quebec catch up to Ontario. Last week, he released their recommendations at the same time as his fall economic update.
All agreed the province needs to boost investment and productivity. But they had starkly different ideas about how to get there. Where some favoured more government intervention, others favoured much less.
Scotiabank economists Jean-François Perrault, René Lalonde and Patrick Perrier called for an industrial policy that “identifies economic sectors having a high productivity potential and synergies with the rest of the economy to maximize the impact of measures to increase Quebec’s GDP while minimizing the effect on public finances.” They pointed to clean-energy, biotechnology and aerospace as sectors on which Quebec should focus its efforts.
That recommendation was echoed by Business Council of Canada senior vice-president Robert Asselin, who urged Quebec to concentrate on the most innovative industries, specifically those that spend the most on research and development and create STEM (science, technology engineering and mathematics) jobs. Commercialization of R&D must also be a top priority.
“Despite the good marketing around AI (artificial intelligence) in Montreal, the challenge of commercializing and transferring technological innovation to businesses remains whole,” Mr. Asselin said in his submission. “Stopping at the research stage is the equivalent of playing a good first period but spending the other two watching your rival play alone on the ice.”
Mr. Asselin also called for Quebec to create its own innovation agency modelled on the U.S. Defense Advanced Research Projects Agency, which focuses on moonshot innovation that the private sector would not undertake on its own. During the 2021 election campaign, the federal Liberals promised to create a Canadian version of DARPA, but abandoned the idea last year in favour of creating a new Canadian Innovation Corporation to spur business R&D.
In its submission to Mr. Girard, the Centre for Productivity and Prosperity at HEC Montréal rejected the Quebec government’s approach of offering subsidies to companies that create or sustain jobs in certain sectors, citing its past efforts to keep Bombardier afloat and its current bid to attract businesses in the electric-battery supply chain.
“Rather than repeating the errors of the past by massively supporting a promising niche and by passively seeking to preserve jobs in companies that are weak vectors of productivity, innovation and investment, industrial policy must serve as catalyst to dynamize the business sector,” the CPP said. “The government must abandon economic interventionism in favour of creating an economically competitive environment that will serve the interests of all businesses in the province.”
The CPP singled out Quebec’s subsidies for the multimedia sector as a policy that should be scrapped. First introduced in the 1990s to attract jobs in the video-game industry, the program that subsidizes up to 37.5 per cent of salaries in the multimedia sector cost $322-million in 2021 alone. Most of the aid went to profitable multinational companies, allowing them to outbid more innovative startups in other high-technology industries for workers. In that respect, the program has become a drag on Quebec’s economy.
If Quebec really wants to close the wealth gap with Ontario, that might be a good place to start.