Analysis | Does Quebec really need Ottawa's money?
François Legault was stung by comments made by Justin Trudeau on payments from the Quebec government. (Archives)
It is surprising to see all the efforts made by the Legault government to get an additional $6 billion in health transfers, while this same government is increasing special rebates to population and plans to lower taxes, measures that cost billions of dollars in lost spending and revenue.
One wonders if it is coherent for the government to demand additional federal transfers for health care, while at the same time Quebec is giving billions to its population. We can also wonder, in the circumstances, if Quebec really needs to receive more money from the federal government.
The three payments made in 2022 in Quebec to help the population cope with inflation, i.e. an additional sum on the solidarity tax credit in January, a one-time amount in May, then another in December, represent spending over $7 billion. Quebec is also planning a tax cut starting in 2023 and an increase in the amount of assistance for seniors, measures totaling more than $3 billion per year.
I am not saying that the battle the provinces are waging to increase the share of federal funding in health care is not legitimate. On the contrary, Ottawa's share continues to decline, while health care needs and demands are only increasing in the provinces. It is normal that they call for a greater commitment from the Government of Canada.
With regard to this issue of health transfers, we clearly understand that the federal government, at the political level, does not find much interest in yielding to the demands of the provinces. Ottawa is open to sending them more money, but under certain conditions. The provinces respond that these conditions represent an intrusion into their areas of jurisdiction.
Everyone is right in the end, but there is still no agreement. The latest meeting of provincial health ministers with their federal counterpart ended badly, with the parties drifting further apart. Health funding is therefore not improved, while all Canadians know very well that our networks, more than ever, need massive support.
So, faced with this state of affairs, if it is entirely appropriate to question the intervention of the federal government in the jurisdictions of the provinces, in particular in the health sector, it is also permissible to question ;question on the budgetary management of the government of Quebec. Will the money claimed in Ottawa be used to finance tax cuts in Quebec, as well as one-time rebates or public support enhancements?
These rebates made more than 90% of the population in May and December 2022 in Quebec economically appropriate? It is essential and necessary to help less well-off people cope with inflation, as the Legault government did at the start of the year by improving the solidarity credit. The Trudeau government also enhanced the credit for low-income workers in its economic statement in early November.
But, giving $400 to $600 to people who earn $70,000, $90,000 or $100,000, as the Legault government did in May and as it prepares to do so in December, is it appropriate and necessary? Isn't this an inflationary measure?
For most of the economists who came to comment on the issue at Economy Zone, pumping billions of dollars into the economy right now can fuel demand, and therefore inflation. This political choice stimulates consumption, while the central bank tries to slow it down in order to calm the rise in prices.
It's a storm in a teacup, m' however, writes the economist Pierre Fortin. These $3.5 billion have a maximum upward impact of 0.15 percentage points on the Quebec CPI [consumer price index] inflation rate in 2022.
He details his explanation: 3.5 billion is 0.6% of Quebec's GDP in 2022. If the multiplier effect is 1 to 1, the upward effect on GDP is precisely 0.6 billion. By Okun's law, the downward impact on the unemployment rate is then 0.3 percentage points, or half of the 0.6%. By Phillips' relation, the effect on the inflation rate of the CPI is at most equal to half of this 0.3 point, or 0.15 point. In short, with Girard's measures, the CPI inflation rate of 2022 compared to 2021 in Quebec will be, for example, 6.65% rather than 6.5%.
< p class="e-p">Pierre Fortin is right: the measure will only have a small effect on inflation. Of course, the one-time amounts of the Legault government are not, on their own, responsible for the current inflation in Quebec. But one wonders why governments take actions that have the opposite effect of what the central bank is trying to achieve.
François Legault was stung by Justin Trudeau who declared that if a government is choosing to send checks to citizens rather than investing in the health system, it is a choice that it will have to justify to the citizens. The Premier of Quebec retorted: I can't believe Mr. Trudeau is coming to say that we shouldn't help Quebecers deal with inflation.
This is where the shoe pinches for Mr. Legault. If the premier of Quebec is right to say that the federal government does not have to interfere in the choices of the provinces, it is still appropriate to question the choice of the Legault government to send money to almost everyone, whether you're a single parent earning $40,000 a year or a childless couple, both of whom make $100,000 each.
Politics anti-inflation policy of the Government of Quebec is subject to questioning. In the context of negotiations with the federal government to have more money to finance very essential health needs, would it not be appropriate to better target support to the population, to better direct the money to people who need help and do everything to get fairer funding from the federal government for health care?