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Quebec’s deficit is wake-up call that PQ needs to confront hard truths

Quebec's projected $2.5-billion deficit is, hands down, the most predictable headline of the year. You could see this coming as clearly as an Airbus A380 descending on Dorval airport.

There were signs the province's growth was slowing to a crawl as early as last spring. Indications of falling government revenue multiplied in the summer and the fall. Now, even the most conservative forecasts look bullish when compared with the province's 2013 growth, now projected at a lowly 0.9 per cent.

Quebeckers weren't making any more money, and they weren't splurging either, so the extra consumption taxes didn't materialize.

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Companies weren't pocketing more taxable profits either. Nor were mining companies paying more royalties because of falling commodity prices.

It was an open secret that the Parti Québécois government would have to break its promise of a balanced budget in the current fiscal year. And that this would happen despite all of Finance Minister Nicolas Marceau's over-my-dead-body assertions, which only grew vaguely weaker in recent weeks.

Quebec is not the first to push back the calendar on its zero-deficit. It is in good company as the sixth province to do so, according to credit rating agency DBRS. However, what was expected from Mr. Marceau, as he updated the state of the province's finances on Thursday, was a clear path out of the Quebec's fiscal mess. Instead, Quebeckers got something that bears more resemblance to a wish: close our eyes, cross our fingers and pray that, somehow, things will work themselves out in two years.

In fairness, the Quebec government did a good job at containing its spending, never an easy feat.

The problem is that the province has so little manoeuvring room that if ill winds blow ever so slightly, Quebec is bound to miss its target and end up with billions in revenue shortfall. It is telling that Mr. Marceau was left to blame low inflation to explain the province's shortcomings. This is not like Quebec is the only place to be hit by such a scourge.

It is worth remembering the recession is long past in Canada. In fact, the country's economy grew at a surprising 2.7-per-cent rate in the third quarter. So you can only imagine how things would derail in Quebec if Canada was really in a funk.

Mr. Marceau is hoping a surge in economic activity will soothe the province's woes, but there is an increasing disconnect between Quebec and the rest of the country. In an attempt to play catch-up, the PQ government plans to invest $2-billion in public funds over four years to create 43,000 jobs, an expensive proposition that may even worsen the province's finances.

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Investors might have come to Quebec without dirt-cheap electricity if the PQ hadn't outdone itself to wreck the province's reputation. It is revealing that in its annual survey of energy executives, the Fraser Institute ranks Quebec among the worst places to conduct business. The province holds the 141st position out of 157 jurisdictions, in the company of warn-torn Syria and Libya. High taxation, heavy regulatory costs and changing policies on the environment discourage investment, the Fraser Institute contends. Now, you can criticize this survey, conducted by a right wing institute, but its findings cannot be discounted so easily. They reflect a negative perception that is held by companies outside Quebec and, like it or not, perception is reality when investors decide where to put their money.

Until Quebec finds a fix to its economy, the province can no longer bury its head in the sand. The government can ill afford some of the most expensive social programs and economic incentives in the country. And if the province wants to keep them, then the Quebeckers that use them will need to pay more.

Research conducted for the Ministry of Finance in 2010 by leading independent economists concluded that Quebec dispenses 26 per cent more social services than Ontario. Should Quebec have offered services on par with those of its neighbour in 2009-2010, the province would have saved $17.5-billion. Also, the fees that Quebeckers pay for governmental services were $887 inferior to those that Ontarians pay per person. This represented $6.8-billion in fees in 2007-2009. There is no reason to think this imbalance has fundamentally changed since then.

If the PQ is truly serious about being fiscally responsible, then it needs to take a hard look at the province's social programs and economic incentives. Quebec needs to make the difficult choices politicians of all stripes have been avoiding for years.

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About the Author
Chief Quebec correspondent

Sophie Cousineau is The Globe and Mail’s chief Quebec correspondent. She has been working as a journalist for more than 20 years, and was La Presse’s business columnist prior to joining the Globe in 2012. Ms. Cousineau earned a master’s degree in journalism from the University of Illinois and a bachelor’s degree in economics and political science from McGill University. More

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