Quebec parties throw fiscal caution to the wind

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Tax cuts and big spending are back in fashion on Quebec’s political runways this fall.

As Canada’s second-largest province prepares to go to the polls on Oct. 3, Quebec’s main political parties have thrown all caution to the wind by promising massive amounts of new spending. None of their plans seem based in reality.

With pocketbook issues outstripping other economic priorities among voters, Quebec politicians naturally feel compelled to offer inflation relief. But whichever party wins is likely to face strong economic headwinds that will limit its fiscal room to manoeuvre. Too bad no party is telling voters that.

The incumbent Coalition Avenir Québec, which held a huge lead in the polls going into the campaign, is basing its numbers on rosy economic growth projections that surpass those of private-sector economists. Even so, the CAQ’s fiscal framework sees the provincial deficits swelling to a cumulative $24-billion over five years, compared with the $6.7-billion forecast in a pre-election report prepared by Finance Minister Eric Girard that the provincial Auditor-General deemed “plausible.”

Under Leader François Legault, the CAQ is promising to send out anti-inflation cheques of as much as $600 to almost every Quebec household later this fall if it is re-elected. That measure alone would cost $3.5-billion. Cutting the tax rate on incomes above $90,000 would cost $7-billion over five years starting next year. Increasing a refundable tax credit for seniors to $2,000, which would be retroactive to the beginning of the current fiscal year, would cost almost $8-billion over six years.

The CAQ proposes to pay, in part, for its promises by capping annual deposits to the Generations Fund at $3-billion. The fund, set up in 2006 and managed by Caisse de dépôt et placement du Québec, aims to offset the province’s gross debt. The cap on deposits would free up more than $8-billion over five years. But it would also have the effect of increasing Quebec’s net debt by the same amount – or even more, since returns on the fund’s assets have historically outpaced borrowing costs.

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Under Leader Dominique Anglade, the Liberals promise to maintain deposits to the Generations Fund based on the current schedule. But the provincial debt would still swell on their watch, since the party also promises to cut taxes on incomes under $90,000 and provide seniors with a $2,000 tax credit.

The Liberals project deficits totalling $25-billion over five years. But that looks like a lowball estimate. The party says it could bring in almost $10-billion over five years by cracking down on tax evasion, raising income taxes on Quebeckers earning more than $300,000, taxing vacant properties and going after foreign digital giants. None of those measures are likely to be as lucrative as the party maintains.

Ironically, the far-left Québec Solidaire, which has typically played down concerns about the deficit, says it could balance the provincial budget by 2024-25. But that would come at a price: the suspension of all payments to the Generations Fund.

The party’s fiscal framework also foresees the implementation of an annual wealth tax and a one-time estate tax on “large fortunes” of more than $1-million. It would raise the tax rate on income over $200,000 by 4.25 percentage points to 30 per cent and on earnings of between $112,655 and $200,000 by 2.75 points to 27.75 per cent.

QS, which has no official leader but has designated co-spokesperson Gabriel Nadeau-Dubois to serve as premier if it wins, is also promising a slew of new taxes on businesses with more than 500 employees. It would raise income and capital taxes, institute a special tax on financial institutions and increase mining royalties.

QS says it would save money by cutting doctor salaries and cancelling four highway-expansion projects in the Greater Montreal Area. It would also create a new Crown corporation called Pharma-Québec that would manufacture vaccines, medical equipment and generic drugs. It says its drug plan would save more than $8-billion during a first QS mandate.

The sovereigntist Parti Québécois, which stood in last place in the polls at the outset of the campaign, on Tuesday pegged its spending promises at $29.9-billion, part of which would be offset by $12.3-billion in new revenues. But at the time of writing, the party had not posted a detailed fiscal framework to its website.

The Conservative Party of Quebec has promised to publish its own fiscal framework in the coming days.

Both the CAQ and Liberal Party insist that, despite bigger deficits, the province’s ratio of net debt to gross domestic product would continue to decline. The CAQ’s fiscal framework pegs the ratio at 35.9 per cent in 2026, from 38 per cent this year. The Liberals forecast the ratio would fall to 33.9 per cent that year based on its fiscal plan.

Quebec’s net debt-to-GDP ratio peaked at 53 per cent in 2014. But a rigorous plan to control spending under former Liberal premier Philippe Couillard turned the tide. Quebec now has a higher credit rating than Ontario and, according to the Parliamentary Budget Officer’s latest fiscal sustainability ranking, had the healthiest provincial finances based on spring 2022 budgets.

Based on these fiscal frameworks, that could all change after this election.