The 2007 Quebec budget – The government must give up on accounting tricks

Montreal, May 21, 2007 – With the first budget from Finance Minister Monique Jérôme-Forget coming soon, the Montreal Economic Institute is urging the Quebec government to abide by generally recognized accounting practices in the public sector, starting now. “The population as a whole must be able to get a true picture of public finances,” says Paul Daniel Muller, President of the Institute. “To achieve this, the government must do away with dubious accounting methods in its budget and financial statements that have enabled it to hide deficits. This is a simple matter of good governance.”

In a report issued in October 2006, the Auditor General of Quebec estimated that the Quebec government’s accumulated budget deficit stood at $5.3 billion as of March 31, 2006, whereas the government claimed to have a surplus of $192 million.

Moreover, Quebec’s health and social services network showed an accumulated operating deficit of $1.3 billion, not included in the $5.3-billion deficit, according to the Auditor General. However, the minister of health and social services and the minister of education come under regular questioning and assume a major share of responsibility when incidents occur in establishments falling within the networks under their jurisdictions.

It should be noted that entities in these two networks manage amounts representing nearly 60% of public spending. Quebec is the only province that does not include entities in the health and social services network nor in the education network in its budget data or in the balance sheets that show whether the government is running a balanced budget.

By continuing to run current account deficits, the government is implicitly transferring the burden of achieving balanced budgets to future generations of taxpayers and users of public services.

To reach a true zero deficit, without distorting basic accounting principles, the government should resume and accentuate the reform of the public administration that it began in its first mandate. Looking back at studies it has published, the Montreal Economic Institute can point to many ways the government can reduce or hold back spending growth:

• Subsidies to businesses located in resource regions include refundable tax credits and tax holidays on income tax, capital tax and employers’ contributions to the Health Services Fund. Various studies have shown the ineffectiveness of these tax expenditures which, rather than create wealth, mostly have the effect of displacing economic activities from central regions where they are profitable without government assistance to locations where they are viable only with state aid, producing a culture of dependency on the government.

• In public services as a whole, the government could call for public tenders aimed at checking if savings can be achieved by relying more heavily on outsourcing for functions where there exists a competitive market. For example, regarding janitorial services in elementary and high schools, a study from the Institute revealed that school boards that outsourced most janitorial work had unit costs (per square metre) one-third lower than school boards relying on salaried staff for this work. Similar savings could be achieved by outsourcing other functions, whether manual or administrative.

• In health care, the government could open the door wider to private health insurance and could allow doctors registered with the Quebec health insurance board to supplement their incomes from the public insurance scheme by offering services for payment from private sources. These two measures would reduce pressures on Quebec government finances. It should be recalled that program spending has been growing by an annual average of 3.9% since 2003, with health care accounting for three-quarters of this increase.

• In the area of social assistance, the government could look to reforms applied successfully in some Canadian provinces and U.S. states, for example making assistance to recipients who are fit for work fully conditional on participation in training activities or community work when these are offered. Quebec has one of North America’s highest rates of dependency on social assistance.

– 30 –

Information and interview requests: André Valiquette, Director of Communications, Montreal Economic Institute, Tel.: 514 273-0969 / Cell: 514 574-0969 / E-mail: avaliquette@iedm.org