Ontario could take a budgeting lesson from… Quebec?
Times they are a changing. Historically, Quebec has been the poster child for bad fiscal management in Canada. At times the province has embraced high taxes, persistent deficits and growing government debt.
But recently Quebec presented its third straight balanced budget, along with a plan to meaningfully shrink its provincial debt burden between now and 2021/22. This has allowed the province to take steps toward reducing its burdensome taxes. Let’s be clear—on both debt and taxes, the province has a long way to go but at least it’s on the right track.
Here in Ontario, as the Wynne government puts the finishing touches on its upcoming budget, it should look to other jurisdictions for ways to rectify its own fiscal challenges. Surprisingly to some, that means looking next door to Quebec.
Quebec, like Ontario, was hit hard by the 2008/09 recession. The governments of both provinces ran significant deficits and racked up debt quickly. Quebec, however, managed to eliminate its deficit faster than Ontario, balancing its books in 2015/16. If Ontario finally delivers a balanced budget for 2017/18, it will be two years behind Quebec.
Of perhaps greatest importance for Ontario, however, is that Quebec has essentially stopped the growth of its debt burden, with net debt (debt minus financial assets) expected to be $1.5 billion lower in 2021/22 than last year (2016/17).
Compare that to Ontario, where the debt burden has grown by more than $10 billion every single year since 2007/08, and is forecasted to continue growing by about $9 billion annually for the foreseeable future.
The stabilization of Quebec’s debt load means that as the economy grows, the province’s debt-to-GDP ratio—an important measure of the burden of government debt relative to the resources available in the economy to sustain that debt—will shrink relatively quickly, dropping by more than one percentage point per year.
To be sure, Quebec has a long way to go to bring this ratio (currently Canada’s second highest) further down. Still, it is encouraging to see a province with such a troubled fiscal history making meaningful progress in this area.
But in Ontario, Queen’s Park has continued to pile up debt in recent years, and plans to add more going forward. As a result the province will see very little progress in reducing its debt-to-GDP ratio. Instead, the most recent forecasts show the ratio hovering near its current historically high level of nearly 40 per cent.
Because Quebec has balanced its books and halted the growth in debt, it’s in a position to pursue tax relief for Quebecers including an increase in the basic personal exemption from income tax, the elimination of the health tax, a corporate income tax reduction, and payroll tax relief for small and medium-sized businesses.
Indeed, tax relief is a benefit of fiscal prudence that would be most welcome in Ontario, especially considering the province’s high and uncompetitive personal income tax rates. When governments spend within their means, and rein in debt, they can undertake pro-growth tax relief.
The times are certainly changing. Quebec is currently far ahead of Ontario when it comes to balancing the budget, stopping the expansion of debt, and providing tax relief for residents. Premier Wynne’s government would be well-advised to learn from its neighbour’s good example.
Subscribe to the Fraser Institute
Get the latest news from the Fraser Institute on the latest research studies, news and events.