Leitão’s Budget: Austerity in All but Name

Both before the budget was tabled and during its presentation, Finance Minister Carlos Leitão spoke of “rigour” and “responsibility,” but never used the term “austerity.” Yet, this is truly an austerity budget: many government departments will be receiving less next year than they have this year. Here is a summary of the budget cuts:

Table 1: Budget cuts in the various ministries

The ministries for the Environment and International Relations suffer the worst cuts proportionally, but it’s worth noting that the impressive figure of $92M being removed from the department of Employment and Social Solidarity includes cuts to employment measures.

We’ve already stated clearly what we think of austerity measures and their dire effects on the economy. Essentially, we hold that limiting state intervention maintains Quebec in the current economic slump.

Incidentally, the budget includes a slight decrease in growth prospects compared to what had previously been announced. The Auditor General’s report published this week pointed out that for the last 10 years, economic growth prospects have been consistently overestimated, by a 0.4% margin. Should this optimistic bias be in effect again this year, Quebec would lose $200M.

Finally, it seems quite obvious that cutting employment measures will not help the economy, nor will reducing investments in infrastructure, as the government has chosen to do.

Plan Nord vs. Environment

While the government is reducing the ministry of Environment budget by 19%, it is also relaunching the Plan Nord project. Announcements have been made for new public investments which will help private companies, notably through a $1.25G fund. It seems that austerity does not apply when it comes to giving mining companies —which are often foreign— a hand in increasing their profits.

In contrast, no investments aiming to reduce Quebec’s greenhouse gas emissions have been announced, except for an infrastructure investment plan which includes 8% for public transit and 23% for roads. This does not bode well for Quebec’s capacity to meet its greenhouse gas reduction targets.

Moreover, the budget includes a list of projects which will be funded through this program: none concern public transit. The government also announced that it would like to see Hydro-Québec take part in transportation electrification, without specifying anything concrete. We have warned elsewhere that Quebec has little chance of meeting its reduction targets: this budget doesn’t get us any closer.

In fact, to ensure that we produce even more greenhouse gases, the government proposes to stay on the track towards oil exploration and exploitation. In addition, shale gas now seems back on the agenda. Indeed, page B.105 of the budget does state what the government is looking into “if shale gas is sustainably developed in the future.” We can therefore suppose that after the release of the report prepared by the Bureau d’audiences publiques sur l’environnement, the moratorium will be lifted.

Small businesses

The government insists upon the fact that it’s giving “oxygen” to small businesses. However, as Table 2 shows, if we look into the two main initiatives, we see instead that neither small businesses nor the government will have made any significant gains by 2018-19. Indeed, the government cuts taxes on small businesses, but it also reduces their tax credits and subsidies. What the government gives with one hand, it takes away with the other.

Table 2: Transferring taxes from one form to another: effect by 2018-2019

In addition, though small manufacturing businesses have seen their tax rate decrease, a portion of the proposed reduction applies to taxes on their net income. However, the manufacturing industry is in such bad shape that small businesses’ profits are low that that many of them will not find the proposal to be advantageous. The truly efficient tax cut is the one on payroll taxes, a recurring demand from employer representatives. The Finance minister here seems to be testing its viability on a small scale.

Therefore there are no direct gains for small businesses, but rather a transformation of the way they are taxed is being introduced, one that reduces the various modes of tax collection and their efficiency.

Social initiatives

Regarding social measures, there is some good news, but not much. Announcements include 3,000 new social housing units, a tax credit to ensure that working seniors pay less taxes, and a tax credit for seniors to stay active. The government also proposes to help them pay their property taxes eventually, but has given no indication of when or how.

Moreover, it seems that the government wants to tackle the high costs of prescription drugs. Even though the initiative is not presented in any great detail, this is good news. Finally, as part of the Plan Nord, the government will invest in education for the First Nations, but only in the aim of training them to participate in the government’s economic projects. In short, these interesting proposals are pretty thin.

In contrast, no mention of the policy on homelessness voted by the previous government. Does that mean the current one is putting it aside? We are told that the amounts paid out in social benefits will be checked: thus more inspections and verifications in store.

Autonomy insurance will also be dropped. It was problematic in many ways, but it attempted to face the challenge of housing seniors. The government keeps talking about the aging population, but it seems to ignore its main consequence, i.e. the need to find places to house seniors.

Finally, the government also announced that it has elected to modify the previous government’s promise to offer better funding to community organizations. All in all, despite a few good ideas, the social measures contained in this budget bode ill for the next few years.

This article was written by Simon Tremblay-Pepin, a researcher with  IRIS—a Montreal-based progressive think tank.