Big-spending Quebec gets discipline
The Gazette (Montreal)
Thu 11 May 2006
Page: B1 / BREAK

Section: Business
Byline: JAY BRYAN
Column: Jay Bryan
Source:
The Gazette

As economist Norma Kozhaya of the Montreal Economic
Institute pointed out this week, Quebec is still quite a poor province - one
where economic output per person remains stuck fully 18 per cent below that of
Ontario, exactly where it was 20 years ago.

The problem is that historically, Quebec's government simply ignored this
fact, hiring more public employees, creating more government programs and,
unfortunately, piling up much, much more debt than Ontario.

Happily, there's now a bright spot. Looking at the past few years, there are
signs that Quebec is getting spending under control.

That's an early conclusion of a new research program by the C.D. Howe Institute that
will examine the credibility of provincial budgets across Canada.

This program began by comparing the two biggest provinces, Ontario and
Quebec, perhaps because they face some of the most serious challenges.

On top of pressures found in all provinces, like rebuilding infrastructure
and maintaining health care, Ontario and Quebec are "fighting headwinds" created
by global economic trends, says William Robson, the institute's director of research.

Resource prices are up sharply in recent years, while the prices of
manufactured goods have been held down by tough new global competition. This
tends to hurt manufacturers, who must buy resources and then convert them into
profitable exports.

Worse still, other provinces like Alberta export a lot of high-priced
resources, pushing up the Canadian dollar's value and further diminishing the
competitiveness of manufacturers.

All this explains why job growth, economic output and provincial revenues in
central Canada have lagged recently.

The solution is for both Quebec and Ontario to help their companies become as
productive as possible to offset the high dollar and global competition.

While some of this extra productivity can be supported by spending - for
example, by maintaining high standards in our relatively efficient education and
health-care systems - it depends heavily on overall provincial spending
discipline.

Controlling spending is the only way to cut taxes and debt and, therefore, to
improve the underlying conditions for investment and productivity.

Happily, Quebec's current government seems to have improved this discipline
considerably. Robson and Yvan Guillemette, a policy analyst, looked at the Ontario
and Quebec budgets for the past nine years, comparing spending forecasts with
actual spending by the end of each budget year.

Over the whole period, both Quebec and Ontario did poorly, although Quebec
performed better. On average, Quebec spending growth outpaced forecasts by 37
per cent each year. Ontario's outdid forecasts by a stunning 76 per cent.

But the key is that Quebec's performance improved under the Liberal
government of Jean Charest, while Ontario did not under the Liberal government
of Dalton McGuinty.

Both new governments were elected in 2003.

The improvement in Quebec over the past three years is so impressive that
this study suggests it's possible that "Quebec has entered a new era of fiscal
accountability" in which we'll actually be able to trust budget spending
projections.

Over this period, points out Guillemette, Quebec actually managed to spend a
tiny bit less than projected, and did so despite severe fiscal stress.

Even the improved status quo isn't enough, however. Without cuts in some
investment-sapping taxes, Quebec has little chance of revitalizing its economy,
the report warns:

"Recent trends in capital investment by business - a critical force behind
rising living standards - bode ill for the future: workers in Ontario get only
about 65 cents of new plant and equipment each year for every dollar received by
their U.S. counterparts, and those in Quebec get less than 50 cents."

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Edition: Final
Story Type: Business; Column

Length: 592 words