Quebec could have eliminated the deficit as soon as pandemic ended, MEI believes

Quebec would have generated a surplus if the additional spending incurred during the pandemic had ceased at the same time as the end of the health crisis, according to the Montreal Economic Institute (MEI).

The think tank, associated with the economic right, has developed an alternative scenario in which the Legault government would have implemented a form of reset with the end of the health crisis in 2023.

In this scenario, Quebec would have reduced its spending to the level it would have reached if the government had followed the same pace, adjusted for inflation, as the previous government of Philippe Couillard.

With these variables, the government would have recorded a surplus of $3.9 billion last year, rather than a deficit of $10.4 billion.

MEI public policy analyst Gabriel Giguère does not question the increase in spending to manage the health crisis, but he believes this effort should have had a temporary effect on deficits.

“During the pandemic, there was an explosion in spending, but there was no political will, no fiscal rigor following the pandemic, which ended in 2023 according to the World Health Organization,” Giguère lamented in an interview.

The Ministry of Finance expects to record a budget deficit of $13.6 billion in 2025-2026, largely due to economic uncertainty, according to the budget released in March.

In the MEI’s alternative scenario, Quebec would instead have a surplus of $912 million if it had cut spending in 2023.

With this fictitious scenario, Giguère wants to demonstrate that the Legault government could have made different choices coming out of the pandemic. “The message here is that historical deficits are not inevitable in Quebec; they are a political choice.”

It remains to be seen whether the MEI’s scenario, which would have required a $10.3 billion spending cut, would have passed the political test of social acceptability. The Couillard government was defeated after reducing the pace of spending growth to return to a balanced budget, and support for the Quebec Liberal Party (PLQ) suffered as a result.

Quebec Premier François Legault also argued that catching up was necessary in health and education after the Couillard years.

“Over the past six and a half years, we have hired 109,000 more people, 109,000 more people, including 98,000 to provide services to the public. So, more nurses, more orderlies, more speech therapists, more classroom assistants in our schools,” the Premier said Tuesday during debates in the National Assembly.

Giguère acknowledges that the fiscal recovery he is proposing is “politically ambitious.” “I think that today, we have no choice but to cut spending.”

The downgrade of Quebec’s debt by the rating agency Standard & Poor’s (S&P) demonstrates the importance of a rapid return to a balanced budget, he said.

While Quebec has set itself the goal of returning to a balanced budget by 2029-2030, Giguère questions the credibility of the Legault government.

He pointed out that there remains a $2.5 billion shortfall that has not yet been identified in the plan to return to balance. Added to this are the revenues from the capital gains tax increase, which will likely be abandoned to align with the federal government. “We don’t know how we’re going to correct this deficit,” the analyst lamented.

“Is the plan of the Legault government and Finance Minister Eric Gérard credible? The answer is very clear. Of course not,” Giguère stated.

–This report by La Presse Canadienne was translated by CityNews