National Post (National Edition)
INSIDE QUEBEC’S ECONOMIC COMEBACK
HOW THE PERENNIAL HAVE-NOT PROVINCE TURNED THINGS AROUND. WILL IT LAST?
What kind of person, groggy after a long transatlantic flight, takes pleasure in the announcement that his connecting flight home will be stuck on the tarmac for a while?
Someone like Quebec Finance Minister Carlos Leitão.
Leitão was recently passing through Toronto on his way home from a European trip combining meetings with bankers and investors and a vacation in his native Portugal.
“We taxi out of the gate, we start to go, and then the plane stops. Why did it stop? They were put aside because there was traffic congestion around Montreal — air traffic!” Leitão recounted in an interview.
“We’d never heard of this in Montreal. Too many planes in Montreal?”
He was an hour late getting off the ground, but he took comfort in having experienced first-hand one small indicator of what economists are calling a remarkable turnaround in Quebec’s economic prospects.
For decades, Quebec was seen as a laggard, trailing the rest of the country in economic growth and job creation while amassing substantial public debt. The province was a champion when it came to subsidies to business and layers of bureaucracy, but Quebecers’ standard of living was sliding. In 2012, a report by Montreal’s HEC business school warned that Quebec was en route to becoming the poorest province in Confederation. (The economist who wrote the report, Martin Coiteux, ran for the Liberals in 2014 and as president of the Treasury Board for the government’s first two years played a central role in controlling government spending.)
It is true that traffic at Montreal-Pierre Elliott Trudeau International Airport is at record levels, but the province has welcomed much more significant news recently. In May, the unemployment rate fell to six per cent, lower than Ontario’s and the lowest in Quebec since Statistics Canada began keeping track in 1976. In June, the rate was unchanged.
Last month, Standard & Poor’s announced that it was raising Quebec’s credit rating from A-plus, to AA-minus, the highest rating the province has enjoyed since 1993, and again, better than Ontario’s.
The province’s economic growth exceeded projections in the first quarter of 2017, with gross domestic product increasing 1.1 per cent over the first three months, outpacing Canada as a whole. That growth meant higher tax revenues for the provincial government, and last month Leitão announced that Quebec had ended the 2016-17 fiscal year with a $4.5 billion surplus — nearly twice what had been forecast in his March 28 budget.
A grim face and a briefcase full of bad news have long been job requirements for Quebec finance ministers, but these days Leitão can’t help smiling.
“We have carried this reputation — which is not deserved, but anyway — of being always in the doghouse of Canadian public finances,” said Leitão, who has held the finance portfolio for the Liberal government since its 2014 election. “We turned it around, so that gives confidence to businesses, to individuals, to consumers. People spend, people invest, jobs get created, and we get into this virtuous circle.”
Not long ago, protesters upset over program cuts were carrying placards of Leitão’s face with a thick red line through it. Now he is described in glowing terms in the Quebec media. “It’s raining money in Quebec City,” Radio-Canada analyst Gérald Fillion wrote last month. Le Soleil’s Gilbert Lavoie called Leitão “the bearer of good news,” and La Presse columnist Francis Vailles spoke of a “historic reversal” in Quebec’s standing compared with Ontario.
It took 50 years, Vailles wrote, but Quebec, “following its twisting politico-economic path, (has) reached a financial situation considered healthier than that of its illustrious neighbour.”
Leitão says a key part of the turnaround has been a disciplined approach to public finances.
“It’s not a big revolution what we did,” he said. “We realized that spending was growing at a much faster pace than revenues. If you do that on a consistent basis, you’re going to end up with a ballooning deficit. We said we would restrain the rate of growth in program spending and allow revenues to keep growing at three per cent a year.”
Improvement appears more impressive when you’re starting from a position of weakness. Even with the steady GDP growth expected this year and next, the most recent Conference Board of Canada projection puts Quebec in the middle of the pack, behind Alberta, Saskatchewan and British Columbia and roughly even with Ontario. And the “historic” turning of the tables between Quebec and Ontario was as much a product of an Ontario slump as a Quebec surge.
Quebec’s emergence from the doghouse is nonetheless capturing attention outside the province. In a June provincial outlook for the Royal Bank of Canada, senior economist Robert Hogue declared, “better times are back,” projecting steady growth for Quebec. The Conference Board’s spring forecast talked of a “vast improvement” in Quebec’s economy, and said the momentum should be sustained over the near term. And Leitão said he got a warmer than usual reception on his recent tour of Europe’s financial capitals, where institutional investors were pleased with the province’s improved credit rating.
Marie-Christine Bernard, associate director of the provincial forecast service at the Conference Board, said the government deserves credit for bringing the province out of the red and for eliminating a health tax in its last budget. “People feel more confident,” she said. “It could come from the fact that the fiscal situation has improved a lot. The government said they would tackle the deficit, and they did it.”
The Quebec Federation of Real Estate Boards reports that 2017 is on track to be the third consecutive year of steadily increasing residential sales in the province following a stagnant period between 2011-14. Prices remain well below those seen in Vancouver and Toronto: the average price of a home in greater Montreal was $373,780 in June, compared with $793,915 in Toronto and $1,053,655 in Vancouver.
But the Quebec Federation of Real Estate Boards says the combination of a strong labour market, a jump in net migration and a surge in consumer confidence is fuelling optimism among homebuyers in the province. Montreal’s more expensive neighbourhoods are leading the way in increased sales, with sales of properties for more than $1 million up 23 per cent.
It certainly does not hurt that Quebec’s volatile political climate has calmed. When the prospect of an independence referendum was always just an election away, investors and property-buyers were wary.
Quebec’s political situation has “probably been a factor in the long run, from the mid-1970s to rather recently,” said Germain Belzile, senior associate researcher at the Montreal Economic Institute, a right-of-centre think-tank.
“But a lot of people in Quebec think that the separatist option is dying right now. If that’s the case, as people realize that, I think our investment will probably rise again.”
Pierre Boisseau, senior director of communications and marketing for Montrealbased Enerkem, said these are heady times for tech companies in Quebec. “Seeing the economy going in the right direction, we’re certainly seeing a lot of excitement, a lot of enthusiasm, and we’ll be contributing to that in the coming months as well,” Boisseau said.
His firm is marketing a made-in-Quebec technology to convert trash into biofuel, with its first plant in Edmonton set to begin production of ethanol in the coming weeks and a second planned for Varennes, Que., northeast of Montreal. “The new cleantech sector is getting stronger and stronger in Quebec,” Boisseau said.
The Conseil du Patronat, Quebec’s largest employers group, is non-partisan and therefore cautious when it comes to assessing the role politics have played in the improved economic fortunes. But when asked, Conseil president Yves-Thomas Dorval allowed that “the (business) community feels more stability.” He said both the provincial and federal governments deserve credit for programs that have encouraged innovation and diversification.
But like all observers of the Quebec situation, Dorval identifies a cloud on the horizon. Low unemployment is good for those seeking work, but it foreshadows trouble as Quebec’s population ages more rapidly than other provinces and people leave the workforce.
“Employers are more confident. What they would be worried about is a lack of qualified, available manpower,” he said. The looming shortage will likely push employers to invest in automation, which he said would improve productivity.
For Luc Maurice, president of Le Groupe Maurice, the aging population presents an opportunity. The company he founded in 1998 has 26 seniors’ residences in Quebec and another five under construction, bringing its new worth to about $2 billion, he said. He projects that Quebec will need to build more than 6,000 units of seniors housing a year for the next 30 years to meet growing demand. “That means $1.5 billion in capital expenditure in Quebec and about 1,150 new jobs per year for the next 30 years,” he said.
Maurice said the economic upturn is helping revive an entrepreneurial spirit, something that was lacking in Quebec as recently as five years ago. “The economic climate in Quebec is very sound,” he said. “It’s not explosive like in Toronto or Vancouver, but sometimes to be just sound is better in the long term.
“The entrepreneurs I meet are succeeding, and they have confidence in the future.”
The flurry of good news raises the question of whether Quebec, a perennial have-not province when it comes to distributing federal equalization payments, could soon switch to being a net contributor. (In 201617, Ottawa sent Quebec $10 billion in equalization payments, almost 10 per cent of the province’s total revenue. It received the most money among the six receiving provinces, though only the second-highest when measured per capita.)
“As we do better, we’ll get less transfers, and that’s fine,” Leitão said. Not requiring any equalization would be ideal, but he would not speculate when that might happen. “I don’t forecast that far in advance,” he said.
Belzile at the Montreal Economic Institute said it would take a sustained period of high economic growth for Quebec to kick its equalization habit. “It’s like welfare,” he said. “Ideally welfare should be for a certain period of time when you’re having problems, but it should not be for life.”
WE TURNED IT AROUND, SO THAT GIVES CONFIDENCE TO BUSINESSES, TO INDIVIDUALS, TO CONSUMERS. PEOPLE SPEND, PEOPLE INVEST, JOBS GET CREATED, AND WE GET INTO THIS VIRTUOUS CIRCLE. — QUEBEC FINANCE MINISTER CARLOS LEITÃO