Quebec's government indebtedness shouldn't be ignored
It's now several days into the Quebec election campaign and some key issues are starting to emerge. There's been the usual focus on high-profile candidates, speculation about a future referendum, and an ongoing debate about how to accommodate the traditions and cultures of those new to the province.
Yet one issue that has been largely absent from the campaign is the province's high levels of government debt. This omission is curious given that the Quebec government's debt is the largest in the country when presented as a share of the economy and is now consuming a significant share of tax dollars in the form of interest payments. If Quebec voters are concerned about their government's level of indebtedness, they should insist that the political parties set out clear plans to get it under control. The problem can no longer be ignored.
Quebec's government debt has grown from $37.6 billion in 1990-91 to $175.5 billion in 2012-13. This growth in government debt has significantly outpaced growth in Gross Domestic Product, population, and inflation. And it's slated to continue to grow with a return to a balanced budget presently a couple of years away.
Now to be clear: no one political party is fully responsible for this significant increase in government debt. It has occurred under the watch of both Liberal and Parti Québécois governments.
The result is Quebec now has the dubious distinction of being the most indebted jurisdiction in Canada and even among U.S. states using virtually any measure.
Quebec's net direct debt (gross debt minus financial assets) now represents 49 per cent of the province's economy. To put this in perspective: Ontario's debt-to-GDP ratio the second highest in the country is 37 percent.
Using an apples-to-apples comparison with U.S. states one finds that Quebec's debt is considerably higher than all of them, including California and New York which have received significant attention for their government indebtedness.
And what are the consequences of Quebec's high level of government debt?
Its interest payments on the debt were $9.8 billion in 2012-13, or 11.4 percent of total government revenue, making its debt service costs the highest among Canadian provinces. These interest payments are consuming considerable share of government resources that otherwise could go to programs and services that Quebecers care about such as health care and education. Its important to note that an increase in interest rates could raise these costs even further.
The debt will ultimately need to be repaid at some point and so a useful measure is the amount of government debt per Quebecer. That is to say, what is each citizens share of the governments debt? Quebecs net direct debt on a per-person basis reached $21,708 in 2012-13. This is the highest in the country exceeding Ontarios (the second highest) by more than 15 per cent.
And the fact is this only accounts for the Quebecs direct debt. Accounting for municipal debt in the province (for which Quebecers are ultimately responsible), its share of the federal debt, and indirect debt such as future liabilities including debt guarantees and unfunded obligations under the Quebec Pension Plan drives these obligations even higher.
If the current situation concerns Quebecers, the fact is the future looks even more problematic. If the Quebec government continues down the same path with respect to taxes and spending, we estimate that Quebecs debt-to-GDP ratio could exceed 57 per cent by 2022-23.
The next Quebec government will need to take decisive steps to bring the provinces debt under control if it wants to avoid this future. This will require a full debate about the role of government in the province and the types of major reforms needed to improve the efficiency of provincial government services. The current election campaign represents a real opportunity for this debate to unfold.
Quebecers have many reasons to be proud of their province. Quebec athletes led the way for Canada at the Sochi Olympics and the province continues to make important contributions to national life in areas such as arts and culture, entrepreneurship, philanthropy, and language. It also has the dubious distinction of being a national and even North American leader when it comes to the highest level of government indebtedness. The province can take action to turn this around and address the problem. But it is going to require recognition of the problem and a willingness to make the tough choices to put the governments debt on a more stable path.
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