Understanding Quebec's Finances and the new PQ Budget

The tabling of Quebec's new budget yesterday afternoon, hasn't afforded me the time necessary to study and comment upon it in so short a time.

These documents are complicated and what appears obvious upon first glance, isn't always borne out when the full document is analyzed, which takes time.

There's always a danger that the mainstream media, in an effort to offer instant analysis,  gets the immediate interpretation wrong, the very best example that I can think of is the wholesale misreporting of the US Supreme Court Decision on Obamacare, where many media outlets, including CNN, falsely reported that the court had knocked down the statute when in fact it had done the opposite and upheld the law. Read a story about the blown coverage

I'll look over the budget today and offer an opinion either Friday or Monday, but I thought that it would be very useful to understand what exactly Quebec's budget is, how much the government takes in terms of revenue and how and where it spends the money.
Perhaps with a little better understanding, we can all make better sense of what the current budget changed, for better or for worse.

Here is a high resolution illustration, representing last year's budget, one that clearly shows how much money the governments take in and where the money is spent. Unfortunately, it is available in French only, but it's not so hard to understand.

You can click the picture to enlarge it then drag it to your desktop where you can use a picture viewing software (MAC="Preview") to enlarge it. Because the illustration is such high resolution, even the little, little writing is clear when enlarged.

Before we start analyzing how the Quebec government spends this money, we should have a general idea about how it raises this money.
I'm only going to provide a rough sketch, not wishing to impose information overload, this post is actually meant to give readers some understanding and background on last year's budget spending, so we can better understand the provisions and changes in the new PQ budget tabled yesterday.

The government actually takes in more money than the 73 billion spent, but that difference is placed into special funds, meant to cover specific long term projects, not covered here. We won't discuss those elements here.

Where the Quebec government gets the 73 billion dollars it spends;  

34%.............. personal income taxes and payroll tax levies
17%.............. transfers from Ottawa (equalization and other transfers, etc.)
15%............. provincial sales tax, gas tax, tobacco, licensing etc.
6%.............. dividends from SAQ, Hydro-Quebec, Loto-Quebec
4.5%...........  corporate taxes
7%.............. premium collected (social security, drug plans, etc.)
8%.............. investment income
9%.............. other income
3%.............. deficit
Link to StatsCan

Readers, the numbers above are very approximate....

Now to understand the chart above and how the government spends the 73 billion dollars, follow the spokes radiating out to the various coloured balloons representing a major area of spending. Around that balloon written in the same colour are sub balloons and smaller details describing spending within that sphere.

Let us consider one of the smaller and easy to understand sections, that of "Famille et Aines" (Family and Seniors) the green spoke, radiating out from the center at about the 6:30 position at the bottom.

That green spoke brings us to a bubble that represents $2.4 billion in spending and as you can see from the satellite comments, $2.1 billion of this money is earmarked for daycare and other family care facilities.

Following the same method you can follow all the spending of each major sphere of government expenditures, it's quite interesting.

Health and social services = $29    billion
Education                          = $16     billion
Debt service                       = $8      billion
Municipal affairs               = $3.7    billion 
Employment                      = $4.2    billion

For your information, the royalties on natural resources, something the PQ has announced with great fanfare that it is increasing, is hardly the windfall promised.  Even if Quebec were to charge 50% more, it would raise an additional $600 million at best, not a drop in the bucket, but not a game changer.

And by the way, in my last post I told you that Quebec gives away an amazing $6 billion in subsidies to Quebec business each year, three times more than Ontario does, despite Ontario raising considerably more taxes than Quebec.

You won't find a direct reference to it in the chart above, the subsidy is done through tax credits, whereby taxes to be collected are forgiven. This leads to Quebec corporations to contribute a paltry 4.5% of the 73 billion Quebec budget through corporate taxes.

As for me, I think I pulled away some interesting facts from the chart, the first and most important, the fact that almost half the budget goes to pay for government and quasi-government salaries which go up each year by a couple of percentage points adding a billion or two to the budget each year. The only way to change this is to cut down on the size of the civil service.

This reminds me of the best advice my late father ever gave me, which was that it is more important to watch what you spend rather than what you make.
Living within your means, and putting a little aside is a sure road map to prosperity.  In tough times, spend less.
It makes sense, even for a government.

As for services like subsidized day care, reduced tuition fees, I am not against these programs on principle, but object that they are universal, meaning everyone rich or poor gets the same benefit.

The idea that a lawyer in a BMW can pull up to a public subsidized daycare (an urban myth?) and drop off her child there for $7 a day is galling.

As for tuition, let me tell you my personal story.
My son was accepted to a medical school in the USA which informed us in the acceptance letter that tuition was $40,000 per year, to be paid up front.

When he was finally accepted to medical school in Montreal, I almost choked at the low tuition of about $5,000 per year, what a bargain!
As a successful businessman I certainly could have paid a lot more than that and I would have done so  gladly, without begrudging students from less fortunate circumstances paying a much reduced rate.

I'm not against enhanced government services, I'm against universality.

A solid tweak to these programs can make them socially and financially responsible, but hey, that's just one man's opinion.
What is yours?