Source: The Canadian Press

Canada faces a fiscal crisis and the first province to hit the wall will be Quebec, a new report warned Thursday.

The province’s heavy debt burden, weak demographic growth and high health-care spending put pressure on it to be the first to make difficult decisions, says the Conference Board of Canada report.

Quebec’s fiscal pressures are so severe that, within 20 years, sales taxes there would need to double if the province tried to balance the budget that way alone, the report notes.

The province’s debt already equals 47% of its economic output. Combined with its share of the federal debt, that number rises to a debilitating 80%.

Glen Hodgson, the board’s chief economist, says that puts Quebec around the same worrisome category as the United States, which, although still far better off than Greece’s 110% level, could see debt seriously limit its public spending options.

The report says current trends point to the provincial deficit ballooning to $45 billion by 2030, as health-care spending more than triples to $90 billion over the next two decades.

Health care’s claim on overall Quebec government revenues would grow, from 43.1% in 2009-2010, to 63.4% in 2030-2031.

“(Quebec) really is the poster child, unfortunately, for the kind of changes that are going to have to happen,” Hodgson said.

Although its report focuses exclusively on Quebec, the conference board announced it will create a new body to track health spending in various provinces.

“We think that health care is one of those issues that has been asleep for the last few years,” Hodgson said.

“It is now time to wake it up again and have an honest national dialogue about the sustainability of our health-care systems.”

Quebec Finance Minister Raymond Bachand downplayed the report, calling it incomplete.

“In fact, this report does not take into account all the courageous choices made by the government in the last budget,” he said in a statement.

Program spending growth will be capped at 2.9% this year and 2.2% thereafter.

“Our plan to restore fiscal balance includes all measures necessary to restore fiscal balance in 2013-2014. Unfortunately, the study did not take all those into consideration.”

Bachand said the province will also reduce the debt by setting higher electricity rates as of 2014 which, he claimed, the study does not take into account.

The conference board is creating a new group called the Canadian Alliance for Sustainable Health Care to conduct analyses of other provinces.

It warns that Quebec isn’t alone but may be more ready for the debate than many provinces because it put in place a tough budget last spring and made hard decisions including raising the sales tax by two percentage points by January 2012.

While Hodgson doesn’t believe the government will succeed in balancing the budget in four years, it was a starting point.

The Ontario government by comparison “punted” the tough choices until after next year’s provincial election, he said.

In the report titled, “Quebec’s Fiscal Situation: The Alarm Bells Have Sounded,” the conference board said Quebec’s revenue growth will be limited to 4% a year and its population will grow by 0.7%.

Meanwhile, spending is forecast to grow 5.1% per year and Quebec’s real economic growth should be 1.6% per year through 2030-2031.

If Quebec’s taxation rates and historical trends in actual per-capita program spending are maintained, the budget becomes unsustainable, warned Mario Lefebvre, the board’s director of Quebec affairs.

“The status quo is no longer an option. There are difficult choices to make,” he told a news conference.

The Conference Board didn’t prescribe any specific solutions but said the room to manoeuvre will lessen if painful decisions are put off for several years.

Lefebvre said Quebec’s population has to decide how it wants to close the financial gap.

“If we want to maintain universal health care, it’s a totally justifiable and honourable choice, but you just have to know that there is a cost.”

Politicians would need to raise the provincial sales tax to 19.5% to balance the budget in 20 years, assuming the current rate of growth in federal transfers and the projected growth in health spending.

While the report’s authors said they weren’t pointing fingers at specific government decisions, Parti Quebecois finance critic Nicolas Marceau said the Conference Board doesn’t believe the government can control its spending.

He said it’s time for the finance minister “tells the truth to Quebecers” about the real state of public finances.

Bachand plans to present his economic update before the end of November.