Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

The budget Quebec Finance Minister Nicolas Marceau tables Thursday will head straight for the shredder if a provincial election is called next month, as expected. But one of the document's dominant themes will live on through the campaign: the return of the fiscal imbalance.

A decade ago, the so-called déséquilibre fiscal became the hobby horse of former Liberal premier Jean Charest and his finance minister, Yves Séguin, who argued that Ottawa's chronic budget surpluses were the result of a structural imbalance that starved the provinces of critically needed cash.

The cleanest fix would have been for Ottawa to cut its tax rates, creating room for the provinces to raise theirs. But for Quebec, this wouldn't do, since its citizens already faced the highest tax burden in Canada. So, the "solution" involved sharing federal surpluses (raised mostly in richer provinces) with have-not provinces.

Story continues below advertisement

As a new Prime Minister keen to court Quebec, Stephen Harper took the bait. Not only did his government substantially increase cash transfers for health care, it adopted a new equalization formula that produced an immediate windfall for Quebec – money that a politically weakened Mr. Charest returned to voters in the form of a tax cut on the eve of an election.

We didn't hear much about the fiscal imbalance for a while. When the recession hit and Ottawa began running record deficits, it became harder to argue that fiscal federalism was skewed against Quebec. But with last week's federal budget heralding surpluses as far as the eye can see, Mr. Marceau dropped the gauntlet: "Everything is in place for a return of the fiscal imbalance."

It's true that if Ottawa's future finances look rosy, Quebec's look terrible. Two recent independent studies – one led by economists at Sherbrooke University, the other by a group at HEC Montréal – depict a province headed for a fiscal wall and a lower standard of living unless there are major structural reforms.

Even former Parti Québécois premier Jacques Parizeau, who has spent most of his 83 years defending his province's more interventionist economic model, this month declared himself "worried about Quebec's economic future for the first time in 30 years."

He won't soon be feeling lighter. There is no sign that Premier Pauline Marois, whom polls show poised to win a majority, is willing to tackle the tough stuff.

The PQ governs like the Liberals, putting patches on the gaping wounds but perpetuating the policies that are slowly killing the patient. But no quick fix is in sight. Mr. Harper's government, which felt burned by Mr. Charest, won't play the fiscal imbalance game again. Beginning in 2017, federal cash transfers for health care, which have been growing at 6 per cent annually, will increase at half that rate. The squeeze on Quebec's finances will tighten dramatically.

Mr. Marceau got some relief in December, when Ottawa quietly confirmed in the Canada Gazette that a much-anticipated renegotiation of the equalization formula won't be happening after all. The current equalization accord expires next month, and there had been plenty of calls from Western Canada and Ontario for a new formula to reflect new economic realities. Instead, Ottawa renewed the current formula until 2019.

Story continues below advertisement

This helps Quebec in the short term. Since its economy has been performing relatively less well than even plodding Ontario (a trend that is forecast to continue), Quebec will get 18.5 per cent more in equalization cash this year than last. Its $9.3-billion compares to $2-billion for Ontario, which will experience a 37-per-cent drop in one year. Total federal transfers to Quebec will reach $19.6-billion, the most of any province, although PQ minister Jean-François Lisée still complains that Quebec gets less per capita than Prince Edward Island.

Ontario Finance Minister Charles Sousa won't get far protesting that his province is being "ripped off." But blaming Ottawa is Politics 101 in Quebec.

Beyond the histrionics, the facts are clear. In 2012, Ottawa raised $44.5-billion in taxes in Quebec, but spent almost $61-billion there, according to official provincial accounts.

It's not a one-way street in Quebec's favour; interprovincial transfers are critical to the smooth functioning of the Canadian economic union and Quebec buys almost $70-billion in goods and services from other provinces.

But Mr. Marceau's revived fiscal imbalance talk isn't just aimed at winning votes in the coming election. Without more help from Ottawa, hard choices loom for Quebec.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies