Why Quebeckers should be worried

KONRAD YAKABUSKI, April 9, 2009 at 1:55 PM EDT

With most Canadian governments having delivered their 2009 budgets, globeandmail.com has asked public-policy experts to assess the best and worst of recession responses. Second in the series is Globe columnist Konrad Yakabuski.

Budgets always present politicians with an opportunity to show leadership. Occasionally, they actually seize the day.

Dalton McGuinty deserves credit for tabling a budget plan that acknowledges Ontario's weaknesses and dares to break with the status quo to address them.

Jean Charest, on the other hand, tabled what just might be the laziest provincial budget of the 2009 harvest. It leaves all the heavy lifting for later — almost certainly after Mr. Charest, now into his third term, has taken his leave — and will make Quebec less competitive vis-à-vis Ontario once the recession lifts.

The contrast between the two budgets, the country's most important since they account for about two-thirds of all provincial spending in Canada, reflects the complacency that reigns in today's Quebec versus the urgency that has gripped Ontario as it watches its automotive manufacturing base crater.

But despite the immediate crisis that sparked Mr. McGuinty's transformation from plodder into reformer, the objects threatening Quebec's fiscal future are actually much closer than they appear. Mr. Charest chose to ignore them, or at least sweep them under the rug, perhaps sensing that Quebeckers are not yet ready to face them.

They'll soon have to. The costs of maintaining Quebec's social safety net — the most generous of any province — are out of control. Only last week, the Charest government admitted it will have to advance $300-million to the province's very popular parental insurance program to cover a deficit this year.

The program, which was introduced in 2006 and offers much longer parental leaves and more generous benefits than its federal counterpart, was supposed to be self-financing through employer and employee premiums. Those premiums have already risen 15 per cent since the program was introduced. It now costs $1.5-billion a year, instead of the $1-billion forecast. It's just one of the reasons Quebec has the highest payroll taxes in the country. And they're about to get higher.

This story of ballooning costs applies to every other recent social innovation — from $7-a-day daycare to public drug insurance. How the government plans to pay for it all in coming years remains a mystery.

Mr. Charest's budget acknowledges that the government has no idea yet where it will get 60 per cent of the revenue it will need if it is to eliminate the deficit, as promised, by 2013. And the size of that deficit is only credible if you believe the government's forecasts that it can limit growth in program spending to 3.2 per cent a year, something it has never done before. This year alone, health care spending is set to rise 5.7 per cent, an amount that will allow for no improvement in patient care.

Quebec can argue that Ontario is only playing catch up by harmonizing its provincial sales tax with the federal goods and services tax. This is only partly true. Quebec still has a separate provincial sales tax; it's just applied in the same way as the GST. What Ontario is promising is a truly harmonized, single tax collected by Ottawa.

Instead of clamouring for $2.6-billion in compensation from Ottawa for having streamlined its PST in 1992 — now that Ontario is getting $4.3-billion for adopting its HST — or demanding yet more in equalization payments, Mr. Charest could try to be more imaginative than simply asking for another federal bail-out.

Quebec's population is aging faster than that of any other province, except perhaps Newfoundland and Labrador. Its economy also grew more slowly than that of any other province during the good times. Hence, in many ways, the real urgency for economic reform is in Quebec, not Ontario.

Ontario has a dynamic, muticultural and growing population. That imposes greater strains during periods of upheaval and recession, but it also provides the base for economic renewal and growth. By announcing lower corporate taxes and a harmonized value-added tax, the cornerstones of Mr. McGuinty's budget, Ontario is taking steps now to build on that base.

The result is that Ontario's economy will emerge from this recession poised for expansion. Quebec's economy, on the other hand, will remain mortgaged by a debt-to-GDP ratio at least 50 per cent higher than Ontario's, less competitive corporate and personal income taxes, and a string of costly programs that will make long-term structural deficits nearly impossible to avoid.