Please the credit agencies, then the voters
The sacrifices have been made. The gods appear to be pleased, at least for now. Now it is left to the priests to try to wash away the bloodstains from the altar, and hope that the people soon forget them. It’s the gods of the bond-rating agencies that “control (Quebec’s) public finances, whether we like it or not,” Philippe Couillard admitted early in his current term as premier.
The agencies determine how much interest your province must pay to finance its debt; the lower the rating, the higher the interest, and the larger the share of your tax dollars that is spent on that instead of on the public services you use.
When Couillard became premier in 2014, Quebec was Canada’s most indebted province (it now is second, to Newfoundland and Labrador), its gross public debt the equivalent of more than half its gross domestic product, or annual economic output (it still is).
That’s what happens after nearly six decades in which the provincial government managed to balance its annual budget only six times; in all the other years, it spent more money than it collected in revenue, and borrowed to cover the difference.
The agencies dictated to Couillard that his government must stop the deficits and reduce the debt in proportion to the GDP. Otherwise, they threatened, they would lower the province’s credit rating. The result was a two-year austerity program of cutbacks in spending on education and other government programs and increases in taxes and other revenues.
The government introduced the austerity program hastily, less than a year after taking office, giving itself little time to identify where cutbacks would do the least damage to services.
Some people, including the premier, quibbled with the use of the word “austerity” to describe the government’s actions. But the cutbacks had real effects, and there were protests.
Even anglophones, usually unconditional Liberal supporters, literally joined hands with unionized teachers to form human chains around their children’s schools in symbolic defence against a Liberal government.
The main opposition parties were only too glad to exploit the discontent over the individual austerity measures, even though any one of them would have come under the very same pressure from the credit-rating agencies had it formed the government.
Some people, such as eminent economist Pierre Fortin, argued that the government damaged the province’s economy by compressing its austerity program into two years instead of three.
But the government had political motives for doing so.
It is classic strategy for a government to try to get unpopular measures out of the way in the first half of a four-year term, to give voters time to get over them before the government is up for re-election.
And the government hoped to save enough money in the first half of its term to be able to afford tax cuts in the pre-electoral second half, without going back into deficit.
Bolstered by the pressure from the agencies, Couillard’s government has stuck to its plan, for once resisting the temptation to “Philippe-flop” that has characterized it in other areas.
Two years ago, it achieved a balanced budget, and began to give itself financial room to manoeuvre within the restrictions set by the agencies.
And this week, right on schedule, the government presented the first of two voter-friendly, pre-election budgets leading up to the vote that is due in October 2018. Two measures in particular were intended to have an immediate, visible impact: a retroactive elimination of the health surtax for all but the highest income earners, to be reflected in income-tax refunds this spring, and the hiring of hundreds of staff to provide services to school pupils starting in September.
The agencies, at least, expressed approval, though they pointedly noted that the province remains heavily indebted.
And the population of a province whose motto translates as “I remember” now has 18 months to forget the sacrifices of the last two years before the next general election is due.