MONTRÉAL, QC: The Canadian Taxpayers Federation (CTF) today released a study demonstrating the perverse effects of federal transfers on Québec. The report also challenges the Quebec government to achieve “Zero Equalization” by 2025.
The authors of the study relied on two underlying problems to arrive at this goal: federal transfers discourage competition of different public policies amongst the provinces and create a dependency effect among Québec politicians, who can always ask for more federal money without taxing their citizens more.
"How is it that our Québec politicians are constantly asking for more and more money from the federal government without ever questioning the very existence of these transfers?" asked the CTF’s Québec Director and study co-author Carl Vallée. "Moreover, why do Quebecers accept as a given that the provincial government will need $10 billion in equalization payments each year? It is time to get rid of this shameful dependence. Quebecers are prouder than that."
The figures compiled in the study demonstrate that, to some extent, federal transfers helped finance the Quiet Revolution and the many social programs it created in Quebec. Between 1956 and 1984, public spending in Quebec increased at the same pace as federal transfers, while the decline in the growth of transfers between 1984 and 1994 forced the Québec government to adjust by cutting its own growth in spending.
"The perverse incentives created by federal transfers foster a vicious circle of dependency that ultimately slows Québec's socio-economic development,” said Vincent Geloso, a post-doctoral researcher at Texas Tech University and co-author of the study. "This means that Québec is truly at the mercy of the federal government, waiting each year to see if it will untie the purse strings."
Despite the bleak picture painted by the authors, there are a few possible solutions to reduce the perverse effects of federal transfers on Quebec. From the outset, Quebec could adopt public policies that encourage economic prosperity. At the same time, the federal government could reduce federal transfers while reducing taxes equally, thus freeing up a fiscal space that Quebec could choose to occupy or not. If these steps were taken, the report authors opine that Quebec would cease to be at the mercy of the federal government and could self-finance the public policy it wishes to adopt.
