Wednesday Night #1308 Québec election aftermath

28 March 2007

Like most candidates, we had two versions of this invitation ready, however, neither version could do justice to last night’s final outcome. Therefore, we are delighted that Yves Séguin , former MLA for Outremont and Minister of Finance of Québec, as well as PRESIDENT OF THE COMMISSION ON FISCAL IMBALANCE (whose report was tabled almost exactly 5 years ago – March 7, 2002), will be with us to guide us through the intricacies of what-next scenarios for Québec.
(We look forward to his comments on the consequences of Jean Charest’s decision to use $700 million of the $2.3 billion federal transfer payments for a tax cut for Québec citizens.)
If not pleased, we are somewhat consoled by the fact that even the pundits have been taken by surprise and today are struggling to re-establish their credibility (see links below). L Ian Macdonald was closest to the mark, and that was three weeks ago.
Michel C. Auger
André Pratte
André Pratte in the Globe & Mail
Chantal Hébert
Andrew Coyne
Don Macpherson
We note that while the New York Times carries a story today on the election, albeit not particularly insightful, we did not make it to the BBC.
The Liberals apparently forgot Québec’s motto “Je me souviens” – it seems that many voters did indeed remember all the broken promises of the Liberals, although the greater Montreal area would seem to have a better “forgettery” than the rest of the province. [Despite the cautionary healthcare note sounded by our OWN Dr. Mark Roper in yesterday’s Gazette] What will happen to the tyranny of the rurality in this minority government?
Do join us for what should be a fascinating analysis along with some forecasting of what happens next on the federal scene (See: BRIAN LAGHI “Harper’s Quebec gamble pays off“)

The Report

I think it is very particular to find [a place] where people still have the passion to exchange and discuss ideas especially in a world that is now full of manipulation, branding, polls and 45-second sound bites

Introduction
As might be expected, following the somewhat tumultuous events of Monday night, a full house of political and economic junkies, many of whom are experts in their respective fields, greeted the welcome return to Wednesday Night of Yves Séguin, former Minister of Finance of Québec.

The Federal Budget and the Québec election
The combined significance of the Flaherty (federal) budget (the “best crafted in history” according to more than one Wednesday Nighter and one which will win the Harper government a majority in the next election) and the electoral shattering of the two traditional mainstream parties in the Québec election towards favouring a young, more conservative government here, is of monumental importance. The influence of the federal budget should not be underestimated; most likely it ensured that the PLQ achieved at least minority government status.
For the first time, Quebeckers have clearly rejected parties promising tax cuts and/or a new shot at independence in favour of a more right wing National Assembly. Whether intended or not, it would appear that the federal Conservative budget addressing, for the first time, fiscal imbalance, by giving Québec $12.9 billion in 2006-07, $15.2 billion in 2007-08 and $16.3 billion in 2008-09 in transfer payments, may have had a hand in the change in this province and is expected by many to ensure a Conservative majority government in Ottawa in soon-to-be-called elections. The outcome of the next federal election is expected to see the Bloc considerably reduced in numbers and Stéphane Dion out as Leader of the Liberal party, following a Liberal Party convention.
For the first time the true worth of each province has been taken into consideration in the redistribution process, including the total wealth of each, fair market value of real estate and all revenue including offshore oil revenue in Newfoundland, as well as continuing debt repayment. This approach was likely strongly influenced by the report of the Commission on Fiscal Imbalance in 2002, which was chaired by tonight’s guest.

Debt – good bad or ugly?
Following Canada’s financial crunch a decade ago, the Chrétien government’s initiatives resulted in successive large surpluses, permitting Ottawa to pay down debt in a spectacular manner. The current Harper government has chosen to put some of the surplus into tax reduction and to address the issue of fiscal imbalance, apparently important issues for the population, virtually assuring a majority Conservative government following the expected forthcoming federal election.
Are we too fiscally prudent?
While apparently the majority of Canadians applaud these measures, some question the wisdom of neglecting the education deficit and the problem of renewal of infrastructure, especially that relating to the transportation of goods and humans, in order to pay down debt at 4½% – 5%, pointing out that borrowing money in order to pay for the modernization of crumbling infrastructure is not necessarily a wise choice when raw materials prices are rising at around 13% compounded. Another, often overlooked element of infrastructure investment is communications.
While transportation infrastructure is a popular topic, it is also true that a more wired society is a more competitive society, therefore should we not also be investing in telecommunications infrastructure? Can this be accomplished through public/private partnership as is happening in Alberta?
I think we are in a longer cycle of increasing infrastructure costs
You don’t get brownie points for getting our debt down with our infrastructure falling apart and medical care in shambles

The Québec budget
The 2008-2009 Québec budget starts with a debt of over one billion dollars. If the accumulated deficits of health care facilities and school boards were included, the provincial debt would have reached $6.6 billion and if other debts such as those of municipalities, universities and Hydro Québec were also included, the total debt would actually reach $193 billion for a population of 7.5 million where just half of the citizens pay tax.
Although we are putting money into the fonds des générations, which is certainly desirable, we continue to borrow at an increasing rate while 52% of citizens pay either no tax or pay less that $500 per year, and that number is increasing by 1% every five years. With fewer taxpayers contributing, the government has borrowed five billion dollars this year (compared to $2.5 billion under the previous PQ government) and a total of fourteen billion over the last four years. Sixty-five percent of the total Québec budget is payroll; add to that another 15% for buildings. At the very least, productivity among the civil servants must be increased and this will inevitably bring on confrontation with unions. It is not likely that a minority government will take on that challenge.
Certainly, addressing the fiscal imbalance is an important first step with more to be done in order to address this problem, but in this campaign, not one of the leaders was willing to take a hard line, preferring the Santa Claus approach. But who will print the money? The last-minute promise by Mr. Charest to reduce income tax is an empty promise, because reduction of taxes will lead to higher fees. It would have been more appropriate to use the money for healthcare or education. The Québec government will have to establish priorities, while responding to the regions, which at the same time want smaller government, but all the services they currently enjoy.
In a number of European countries, this is referred to as ‘fiscal alcoholism’. In dealing with it, you have to increase taxes or cut expenditures, both of which are politically very painful
What part in cutting government deficits can be played by making government more efficient overall?
It has been calculated that tax (PST) evasion on home renovations in Québec amounts to a total amount of uncollected tax of $1billion – if Québec were to give a tax deduction on renovations of up to $10,000, it could be expected that most would pay the taxes and declare the expense in order to claim the rebate – the cost to Québec would be roughly $12 million

How is a budget crafted?
Choices between the rational and the politically desirable, make the work of Finance Minister and the Deputy Minister extremely challenging. Unfortunately, it is quite unusual to see a good match between the Minister and his department. The budget is most often the product of the personalities involved, and often depends on the Minister. In Québec, some 100 people work on the budget, and normally it is the Deputy Minister who serves as the go-between the Minister and the worker bees. Thus, the minister has no opportunity to discuss and debate scenarios with other levels of the civil service.
In the ideal situation, the Minister, the Deputy Minister and a fairly large number of key civil servants massage the various parts of the budget, in order to arrive at the optimum if not the best means of attaining financial as well as political goals as determined by the Prime Minister and cabinet; not a simple task.
In Ottawa, the process has been quite different, with weekly meetings starting in early September, between the Deputy Minister and the Prime Minister’s Chief of Staff, while in Québec it is more likely that the Minister of Finance discuss directly with the Premier’s office.
In either case, obviously, it is the Prime Minister (Premier) who has the final say.
Perhaps the best guideline is for the minister to ask himself, ‘can I explain this to my mother or father? If I don’t understand it well enough to explain it to them and answer their questions, then there’s something wrong’.

The world economy
The crystal ball is clouded but financial and geopolitical problems could make matters even more difficult for our governments. The U.S. is heading for a soft landing, followed by a hard landing and possibly recession. The mortgage market in that country is in disarray. The economy is weakening in Europe and global growth is slowing. France is not doing well, Germany may surprise, but only for another quarter or two. The constant threat of overdue global disaster, very possibly the avian flu, or a widening Iran crisis, does not bode well for the continued unbridled growth that we currently experience.

MORE QUOTES
It will be very difficult soon. … Expect an election within the next six to twelve months. He (Jean Charest) will not be able to renew the Liberal Party (of Québec).
Boisclair will resign and Duceppe will succeed him
We have a great big country – one of the best in the world – and everybody thinks so who lives here because there are so many people who want to come here, but we are so adamantly keeping them out that we are making absolutely sure that there will be no market for any of the products we could produce here. What we need is more people here
To achieve pay equity, we should cut men’s salaries to the level of women’s – that would not add to our costs
Not once in the past three hours have we mentioned the environment or sustainable development – issues that concern our lives and those of our children and grandchildren

More links on related topics
The election may not have made it to the BBC, but the Economist carries an analysis dated March 29 Au revoir separatism, bonjour ‘autonomy‘: Quebec’s voters have turned their province’s politics upside down, and may have reshaped those of Canada
Will the ADQ replace the PQ ?
Mario Dumont’s ambivalent nationalism is a convenient, yet dignified, exit from the sovereignist agenda, says LYSIANE GAGNON
The disconnect between Quebec francophones and Canada
Jeffrey Simpson The Globe and Mail
27 march 2007
The Quebec election results – a feeble Liberal minority – illustrate the continuing disengagement of the province’s francophones from Canada. Where this will lead is unknown, but this disengagement will intensify demands for more power and money for Quebec.
Quebec political figures push for proportional representation