Can CAQ fulfil its promise to break Quebec’s reliance on transfer payments?
Economy would first need to be turbo-charged
Within minutes of the CAQ’s smashing electoral victory in Quebec, Alberta opposition leader Jason Kenney was welcoming the new government with a reminder of their promise to build a Quebec that will no longer collect equalization payments. And Kenney is right: A mere 11 months ago, CAQ leader Francois Legault did indeed tell the Quebec National Assembly that he yearned for an equalization free Quebec.
“What I want to say to Quebecers, is that a CAQ government will seek zero equalization. A CAQ government will eliminate the wealth gap with the rest of Canada. A CAQ government will have ambition, will think big for Quebec,” Legault said in comments to Liberal leader Philippe Couillard on November 22, 2017.
According to the numbers, the only way to break this pattern would be for Quebec to launch into an utterly dizzying era of economic growth.
Established in its modern incarnation in 1967, equalization funnels federal cash to the provinces to ensure that government services are roughly the same quality across the country.
Quebec is a consistently large recipient of equalization monies. This fiscal year, for instance, Quebec will receive $11.7 billion out of a total equalization fund of $18.9 billion. And La Belle Province is in this position for the simple reason that they consistently make less money than everyone else.
“What would need to happen for Quebec to get off equalization is for, over time, Quebec to have more fiscal capacity growth than the rest of the country to the point that it became about as rich as the (average of all 10 provinces),” said Ben Eisen, a senior fellow at the libertarianminded Fraser Institute who has studied equalization.
Right now, Quebec’s GDP stands at about $45,000 per person. But to get to the status of being a “have” province, they’d have to boost that to something near Ontario’s current level of $54,000.
CAQ has an ambitious prodevelopment agenda for Quebec, but according to Eisen if they wanted to ditch equalization they would need to instantly swell the economy by 25 per cent — an utterly ridiculous level of growth that Quebecers likely haven’t come close to matching since the earliest days of New France.
A more realistic goal is that Quebec’s economy would have to noticeably outgrow Canada’s economy for at least 20 years — a feat that would still be “quite something,” according to Eisen.
In fact, they’re already behind: Despite a booming GDP growth of 3.1 per cent in 2017, Quebec still lagged behind the Canadian average of 3.3 per cent — fuelled largely by massive expansion in B.C. and Alberta.
“I still think it is a useful aspirational long-term goal,” said Eisen.
Quebec has never once qualified for “have” status, and depends on equalization for a significant share of its provincial budget. The province’s widely touted 2017 budget surplus of $4.5 billion, for instance, was less than half of the $11 billion in equalization it received for that year.
Equalization is complicated, but it’s calculated based on a province’s “fiscal capacity”; their ability to raise revenues at average rates of taxation.
This is why Albertans feel so consistently screwed by equalization. Even though they keep provincial taxes low, the federal government still calculates Alberta’s fiscal capacity as if they paid taxes like an Ontarian or a Nova Scotian.
But despite Kenney’s enthusiasm for a no equalization Quebec, it probably wouldn’t have much effect on Alberta, which hasn’t received a penny in equalization since it discovered oil in the 1950s.
Like any government program, the equalization system is funded by tax revenue — and tax rates don’t automatically go down if the equalization burden is suddenly lifted. In fact, the equalization “pie” would remain about the same since payouts are tied to overall GDP growth rather than provincial need.
As a result, a more fiscally independent Quebec would simply mean that more cash was being funnelled to other have-not provinces such as New Brunswick or Manitoba.