In 2021, Quebec is projected to outperform its peers in terms of economic growth. It is experiencing record-breaking migration from other provinces. Quebec’s economy is diverse, allowing it to not only weather the pandemic but also to escape the harmful consequences of decarbonization.
It may seem strange for Quebec to emerge from the pandemic as a powerhouse after decades of economic doldrums.
However, its broad economy, low housing prices, and mild pandemic lockdowns have combined to give it a significant advantage over its provincial counterparts.
A recent analysis from Bank of Nova Scotia’s Senior Economist Marc Desormeaux was released prior to Quebec’s fiscal update on November 18, claims that the province is on track for 6.8% real GDP growth this year, much exceeding the 4.9 per cent prediction for Canada.
The advantages are based on variables that may or may not be permanent. Quebec’s home consumption has recovered faster than Ontario’s, owing to the province’s decision to lift pandemic prohibitions faster than its western neighbour. That disparity may close if Ontario’s household spending is simply deferred. “It’s still early in the pandemic,” Mr Desormeaux said in an interview.
He does, however, identify several trends that have the potential to be long-term.
One example is interprovincial migration from Ontario to Quebec, which peaked in the second quarter of this year at its highest level ever. Mr Desormeaux attributes the trend to Quebec’s (relatively) inexpensive real estate and acceptance of teleworking. It would be a significant turnaround of the population outflow that formerly migrated westward from Montreal to Toronto if this trend continued.
The diverse economy of Quebec seems to be another attraction for possible intraprovincial migrants.
Crucially, it appears that this will permit Quebec to maintain economic development even while decarbonization activities accelerate. The province’s economy has decoupled from rising greenhouse gas emissions during the last decade, according to Mr Desormeaux’s analysis.
Employment Insurance premiums are just another tax that ends up as part of general revenues, according to a recent Tax and Spends report on rising payroll taxes. Employment Insurance (EI) revenues are not segregated in the same manner that contributions to the Canada Pension Plan are. However, it is not quite accurate to claim that they are merely a component of general revenues.
For years, the extra EI contributions poured into Ottawa’s coffers, with both the Chrétien Liberals (and later, the Harper Conservatives) opting to keep premium rates higher than they needed to be. Changes made by the Harper government in 2013 were intended to put an end to this practice.
The EI fund must balance over a seven-year period under those criteria. When the economy is growing, rates tend to fall as contributions rise and costs decrease. When an economic downturn strikes, unemployment is high, lowering contributions and, subsequently, rising costs. General revenues will be financing EI payments until rates rise, not the other way around.
One point to note about the seven-year rule: it didn’t go into force until the fiscal year 2017-18. Because of the delay, EI rates were frozen at higher levels than they would have been if the seven-year rule had been applied, allowing the Harper administration to balance the budget more rapidly (or at least more easily).
The federal equalization program continues to benefit the province the most. However, its resurrection could represent the first hesitant steps toward Premier François Legault’s goal of developing a thriving economy that does not require government assistance.
The Employment Insurance program’s position as an automatic fiscal stabilizer is one of its most important economic benefits. Out-of-work Canadians receive EI payments without delay if the economy begins to tank, and without the need for any explicit government involvement. The C.D. Howe Institute (a policy institute) proposes a new type of fiscal stabilizer: automatic GST cutbacks in the scenario of a protracted economic output shortfall, according to a study paper.
Once the economy had regained, the rate would climb, allowing that lost income to be repaid over time. The authors do point out one caveat: for the idea to work, the GST rate would have to be raised from its current level.