Debate has to come sooner or later. It touches on what has become a sacred cow in Quebec, namely our famous Generation Fund, a tool created in 2006 to curb our excessive debt.
Posted at 6:30 am.
Should we scrap the generational funding proposed by Quebec Solidaire and take annual installments of billions earmarked to finance expenses other than debt?
Instead, as the Liberals and Conservatives think, 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 Quebec or, to a lesser extent, the Parti Québécois?
In my opinion, removing the fund is a very bad idea. This not only serves our long-term interests better, but also prompts us to factor debt and infrastructure investment into our equations.
The idea of capping or slowing the growth of payments to reduce taxes reasonably, combat climate change, or adjust our services to the aging of the population is highly commendable. .
Over the years, you should know Balanced Budget Act To achieve zero deficit, the government has to take into account annual deposits in the generation fund.
In particular, the government allocates earmarked revenue to funds such as Hydro-Québec and royalties from mines. Basically, we wanted to allocate revenue from our regional heritage to the fund.
Annual payments placed in the Caisse de dépôt bring a certain attractive income and reduce our collective debt.
Dope than health
But here we are, the payouts dedicated to the fund have been steadily increasing over the years. They are expected to increase from 3.4 billion this year to 5.2 billion in four years, a 50% increase, according to pre-election reports. In comparison, portfolio expenses (health, education, etc.) will increase by 15.5%, three times less.
The question of relevance of this fund arises in the context of achieving the target of reducing total debt to 45% of our GDP. On March 31, 2023, we will be at 40% of GDP, down from 38% at the end of the election period in 2026-2027.
Québec solidaire intends to redirect all payments from the fund to current costs and specific investments, particularly those related to climate change. Already accumulated kitty will not be spent, I promise at QS.
Liberals like conservative Eric Duheim don’t want to touch the fund’s payments, even if it’s to finance their spending, like their most important tax cuts.
François Legault and his finance minister Eric Girard, for their part, consider it preferable to limit payments to the fund so that they can free up 1.7 billion a year for tax cuts during the mandate. $3 billion will be paid annually beginning in 2027.
Finally, the PQ will use $1 billion from the fund to finance the energy transition.
Our schools, our roads, our climate
Defenders of the fund say it allows governments to benefit from good returns from the Caisse depot. According to a pre-election report, the fund’s annual investment income will reach $1.3 billion in 2025-2026, and the fund will be worth nearly $33 billion (compared to nearly $16 billion on March 31). )
Another benefit: the fund has imposed great fiscal discipline on Quebec’s various governments for 15 years, regardless of their loyalties, allowing us to reduce our debt under Ontario and Newfoundland and Labrador. Today, our credit rating is better than Ontario and our market credit ratios are often the second lowest in Canada behind British Columbia.
Finally, defenders say, in an environment where our infrastructures — the credit factor — need more love than the CAQ has dedicated to them, 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) needs to invest 25 billion more than the 142.5 billion over the next 10 years. And we’re not talking about the additional sums needed to tackle climate change…
Opponents of the fund, such as economist Marcel Boyer, believe the government is taking unnecessary risk by investing taxpayers’ money instead of directly repaying the debt. These fears make sense these days, with interest rates and disappointing market returns.
There are the arguments of Quebec Solidaire, which has never honored this instrument launched by PLQ, judging that the current needs are pressing and that repayment of the loan is essentially secondary.
Be that as it may, our first debt reduction task (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 Hydro-Québec’s real market value. No other province has such a gem.
As I said, defunding should be out of the question. But in Quebec’s current budget environment, reducing the growth of payments and using the surplus for purposes other than debt is not implicit.
For you to believe this, know that now that our debt is under control, there are many avenues on the horizon. A new target will be set next year, but if that target is met and sustained, the non-recurring margin within 5 years will be between $6 billion and $12 billion.
Even better: I get such figures for 2027 even after adjusting our taxes and investments to adequately repair our schools and roads (see demonstration below). 1.
Sure, a recession is upon us, war creates uncertainty, deficits cause headaches, and aging can be costly, but this game of projections — highly uncertain, I admit — demonstrates that our collective perspectives on public finance are changing significantly. Good order and credit control.
It is not for nothing that political parties have such grand ambitions. Now it is up to us to discuss. And big thanks 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 other provinces (which is gross debt minus financial assets), this net – rather than gross debt – will be the new measurement tool. But here we are by maintaining the target of 35% of GDP – and assuming growth in GDP – Quebec will create a $12 billion non-recourse levy over 5 years, according to previous estimates. To achieve such figures, I reduced annual taxes by 1.8 billion and added 2.5 billion a year in new infrastructure spending, as promised by the CAQ. As debt is maintained at 34% of GDP instead of 35%, the margin will be 6 billion instead of 12 billion.
