The debate must come sooner or later. It touches on what has become a sacred cow in Quebec, namely our famous Generations Fund, a tool created in 2006 to curb our excessive indebtedness.
Should we abandon the generational financing proposed by Québec solidaire and take annual installments of billions intended to finance expenditures other than the debt?
Instead, as the Liberals and Conservatives believe, after all, should we fund tax cuts and other promises without touching the budget? Or cut the pear in half as proposed by the Alliance Avenir Québec or, to a lesser extent, the Parti Québécois?
In my opinion, deleting the fund is a very bad idea. This not only better serves our long-term interests, but also prompts us to factor debt and infrastructure investment into our equations.
The idea of capping or slowing the growth of payments to reasonably reduce taxes, fight climate change or adapt our services to an aging population is very laudable. .
Over the years you should know Balanced Budget Act To achieve a zero deficit, the government must take into account the annual payments to the generation fund.
In particular, the government allocates revenues allocated to funds such as Hydro-Québec and mining royalties. Basically, we wanted to allocate the income from our regional heritage to the fund.
The annual installments placed in the Caisse de depot provide some attractive income and reduce our collective debt.
Dope that health
But lo and behold, the payments dedicated to the fund have steadily increased over the years. They are expected to rise from 3.4 billion this year to 5.2 billion in four years, a 50% increase, according to pre-election reports. In comparison, portfolio spending (health, education, etc.) will increase by 15.5%, or three times less.
The question of the relevance of this fund arises in the context of achieving the objective of reducing the total debt to 45% of our GDP. On March 31, 2023, we will be at 40% of GDP, compared to 38% at the end of the electoral period in 2026-2027.
Québec solidaire intends to redirect all payments from the fund to current expenditures and specific investments, particularly those related to climate change. The kitty already accumulated will not be spent, promised at QS.
Liberals like Conservative Eric Duheim do not want to touch fund payments, even if it is to finance their spending, such as their biggest tax cuts.
François Legault and his Minister of Finance Éric Girard, for their part, consider it preferable to limit payments to the fund so that they can release 1.7 billion per year for tax cuts during the mandate. $3 billion will be paid out each year starting in 2027.
Finally, the PQ will use $1 billion from the fund to finance the energy transition.
Our schools, our roads, our climate
Advocates of the fund say it allows governments to take advantage of the good returns on the Caisse’s deposit. According to a pre-election report, the fund’s annual investment income will reach $1.3 billion in 2025-26, and the fund will be worth nearly $33 billion (compared to nearly $16 billion as of March 31). )
Another advantage: the fund has imposed great fiscal discipline on the various Quebec governments for 15 years, regardless of their allegiance, allowing us to reduce our debt under Ontario and Newfoundland and Labrador. Today, our credit rating is better than Ontario’s and our market credit ratios are often the second lowest in Canada behind British Columbia.
Finally, advocates say, in an environment where our infrastructure – the credit factor – needs more love than the CAQ has given it, it would be heretical to divert or reduce payments to the fund.
An example: 56% of our school buildings and 46% of our road network are in poor or very poor condition. To raise the bar, the Quebec Infrastructure Program (PQI) must invest $25 billion more than $142.5 billion over the next 10 years. And we are not talking about the additional sums needed to fight against climate change…
Opponents of the fund, such as economist Marcel Boyer, say the government is taking unnecessary risks by investing taxpayers’ money instead of paying down debt directly. These fears make sense these days, with disappointing interest rates and market returns.
There are the arguments of Quebec solidaire, which has never honored this instrument launched by the PLQ, judging that the current needs are pressing and that the repayment of the loan is essentially secondary.
However, our first debt reduction target (below 45% of GDP) has been achieved. And the path to reach the Canadian average is not too long, or already reached if we take into account the real market value of Hydro-Québec. No other province has such a gem.
As I said, defunding should be out of the question. But in Quebec’s current fiscal environment, reducing the growth of payments and using the surplus for purposes other than indebtedness is not implicit.
For you to believe it, know that now that our debt is under control, many avenues are on the horizon. A new objective will be set next year, but if this objective is achieved and maintained, the non-recurring margin within 5 years will be between 6 and 12 billion dollars.
Even better: I get such numbers for 2027 even after adjusting our taxes and investments to adequately repair our schools and roads (see demonstration below). 1.
Of course, a recession is upon us, war creates uncertainty, deficits cause headaches and aging can be costly, but this set of projections – very uncertain, I admit – shows that our outlook collective views on public finances are changing considerably. Good control of orders and credit.
It is not for nothing that political parties have such great ambitions. Now it’s up to us to discuss. And a big thank you for the funding!
1. Next year, our net debt will be equal to 35.3% of GDP, which will be reduced to less than 33% within 5 years, according to the pre-election report. As is the case at the federal level and in the other provinces (which is the gross debt less the financial assets), this net debt – rather than the gross debt – will be the new measurement tool. But now, by maintaining the target of 35% of GDP – and assuming GDP growth – Quebec will create a non-recourse levy of $12 billion over 5 years, according to previous estimates. To arrive at such figures, I reduced annual taxes by 1.8 billion and added 2.5 billion per year in new infrastructure spending, as promised by the CAQ. The debt being maintained at 34% of GDP instead of 35%, the margin will be 6 billion instead of 12 billion.