Under François Legault, Quebec is returning to the bad old days of endless deficits

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François Legault is one big spender.

No Quebec premier has increased provincial expenditures faster than him since Robert Bourassa, five decades ago. Under Mr. Legault’s Coalition Avenir Québec government, the province appears to be returning to the bad old days of runaway spending and endless deficits.

When Mr. Legault came to power in 2018, Quebec’s public finances were among the healthiest of any provincial government. Four years of austerity under the previous Liberal government of Philippe Couillard aimed at eliminating an unwieldy structural deficit had left a hefty budget surplus and put the province’s ratio of net debt to gross domestic product on a downward trajectory for the first time in decades.

It is more than a bit ironic that Mr. Legault, who founded the CAQ in 2011 on a platform to shrink the bloated Quebec state, has overseen the biggest increase in the size of the provincial government since the Quiet Revolution.

Quebec Finance Minister Eric Girard’s March 12 budget is expected to jettison the CAQ government’s previous promise to eliminate the deficit by 2027-28 as the provincial economy stagnates and frothy public-sector wage settlements drive spending upward.

The 2024-25 deficit is expected to be significantly larger than the $3-billion shortfall Mr. Girard projected in his fall update. Mr. Legault acknowledged as much last month when he ruled out spending cuts or tax increases to balance the books. “Austerity is out of the question,” he said after conceding that an 18.6-per-cent public-sector wage increase over five years would lead to bigger deficits for the foreseeable future.

As it is, Mr. Legault has already outspent most of his predecessors. A Fraser Institute study last week showed that per capita provincial spending, excluding interest costs and adjusted for inflation, rose by an average of 7.3 per cent during his first term in office between 2019 and 2021. Excluding COVID-19 pandemic-related spending, the annual increase was 4.7 per cent. That compares with an increase of just 0.3 per cent a year under Mr. Couillard, who led the province between 2014 and 2018.

A prebudget submission by the Association des économistes québécois, or AEQ, showed that per capita provincial spending grew by 36 per cent in Quebec between 2017-18 and 2022-23, compared with the provincial average of 27 per cent.

At more than 25 per cent of gross domestic product, provincial spending as a proportion of the economy remains much higher than its prepandemic level of about 22 per cent. Quebec now spends about 14 per cent more per capita than the provincial average; the gap stood at about 6 per cent before the pandemic.

Income tax cuts promised during the 2022 election campaign will deprive the province of about $1.7-billion in revenue in the current fiscal year and $9.2-billion by 2027-28. The Legault government also spent billions on “anti-inflation” cheques sent to most households in 2022. Both measures helped Mr. Legault win the election, but left him with much barer cupboards.

“There will thus likely be no room to manoeuvre in the coming years to fund new services or reduce the tax burden,” the AEQ said in calling for a systematic program-spending review “to identify lower priority activities and free up resources for higher priorities.” The group also recommended the creation of an independent public-finance watchdog modelled on the federal Parliamentary Budget Officer and Ontario’s Financial Accountability Office.

Quebec’s economy stalled dramatically in 2023, contracting by 0.2 per cent in November amid rotating strikes by some public-sector workers. Per capita GDP declined by 2.5 per cent from a year earlier, compared with a decline of 1.9 per cent across Canada, as economic output failed to keep pace with near-record population growth, National Bank said in a note last month.

Mr. Legault has made eliminating the gap in per capita GDP with Ontario a key goal. But that goal now appears to be seriously compromised as the province posts subpar economic growth. While household debt levels remain lower in Quebec than in the rest of Canada, weak business investment and labour productivity are a drag on per capita GDP.

After peaking at a whopping 54 per cent in 2013, Mr. Couillard’s government put Quebec’s net-debt-to-GDP ratio on a steady downward trajectory by eliminating the province’s structural deficit. By the time the Liberals left office, the ratio had declined to 46 per cent.

The CAQ government inherited a hefty budget surplus that allowed it to further slash the debt ratio to 38 per cent in 2022-23. Its fall economic update projected the ratio would fall to 35.9 per cent by 2027-28. But that was before Mr. Legault concluded wage settlements with public-sector workers that will cost billions more than he expected at the outset of the negotiations.

Quebec’s big-spending Premier, the same one who once promised smaller government, now risks leaving his province’s public finances in worse shape than he found them.