William Watson: Quebec’s budget may be fiscally responsible, but its 598-page economic plan full of interventionism

The story line coming out of this week’s Quebec and Ontario budgets is likely to be that, in a reversal of longstanding form, Quebec has become a paragon of fiscal management while Ontario has taken to spending like the proverbial drunken naval forces person.

The new relative reevaluation of the two provinces’ fiscal policies does ring true so far as the bottom-line numbers go. Tuesday’s Quebec budget anticipates a surplus of $2.8 billion for 2018-19, which is appropriate at the top of an economic cycle, while Ontario, having tried surpluses for one year in a row, has decided it prefers deficits. Quebec does call for $1.9 billion of net fiscal requirements, once its capital projects are taken into account, so it hasn’t completely given up borrowing. But Philippe Couillard’s Liberal government came in saying it would get the budget to balance, it has and it intends to stay there, unless the economy goes south.

In part, however, it has used supposedly prodigal Ontario as a benchmark. At one point in Quebec’s 598-page economic plan — and any plan that’s 598 pages long is too much — it justifies what the public sector unions will regard as spending control by comparing Quebec’s faster growth of spending with Ontario’s (though the comparison is before this week’s Ontario splurge). Likewise, in a discussion of the Quebec liquor board’s contribution to the consolidated fund, the government notes how wine prices have been reduced to try to match Ontario’s and how some prices are now even “better” than Ontario’s. By “better” it means “lower.” Whenever a government identifies with consumers it’s always a victory.

However, let’s not confuse macro and micro. The macro numbers do indicate a measure of fiscal responsibility. But, scroll through the economic plan and you come away numbed by the comprehensive interventionism. The government even rearranges geography. For the purposes of incentives to mining, the North has been extended southward to encompass mines not formerly eligible, while the Magdalen Islands, far down the Gulf of St. Lawrence, close by Cape Breton, are now counted as North for the purpose of tax credits for those living in isolated areas. The Islands, home to just 13,000 people, have their own seat in the provincial legislature. It is currently held, you will not be surprised to learn, by the governing party.

In the real North, the government is going to support dozens of not-for-profit greenhouses — if they’re in the North, you can be sure they won’t be profitable — and, for $5 million, at least one experimental commercial greenhouse, to be fuelled by the burning of “residual materials,” i.e., garbage. This is both to reduce the high cost of food flown into the North and to harvest the energy otherwise wasted in garbage burning. The government does concede there are natural obstacles to northern greenhouses, i.e. “the harshness of the climate, which makes it expensive to maintain an adequate greenhouse temperature for commercial production.” Even so, garbage in, cucumbers out.

There are other cases where cost is downplayed — which, of course, violate rudimentary economics. The government has a program to encourage business investment by subsidizing electricity costs. Cheap, abundant hydro-electricity is one of this province’s big selling points, but we’re also willing to go beyond comparative advantage to attract industry. It’s like the Saudis discounting oil — crazy. We should want exactly the amount of industry our low electricity prices attract on their own and not a dollar more.

But if cost is no object, neither is demand. We read in the economic plan that “Quebecers are passionate about distilled beverages made by local producers that showcase Quebec products,” so much so that the sale of spirits in Quebec through the state liquor board has grown by close to 30 per cent per year over the last five years. That’s from a very low base —just $8 million in 2010-11 — but my goodness, 30 per cent per year. So what do you do in the face of 30 per cent growth? You subsidize, of course. If an industry is having trouble in Quebec — think forestry — you subsidize it. But if it’s doing well, you subsidize it, too.

The budget also introduces new tax measures, $277-million worth, in furtherance of the government’s goal of making Quebec an “executive-driven economy” in which, as U.S. President Donald Trump might put it, “Quebec businesses are the predators … not the prey.” Suggesting CEOs should be in charge of anything is delightfully incorrect these days. But the trouble with CEOs is that if there’s a problem in their organization, they want to dive in and get their hands dirty. That’s fine for firms. But an economy doesn’t benefit — just the opposite — when government CEOs devise a policy for everything anyone at all says is a problem.