Tuesday, March 11, 2014

2014 General Election in Quebec: An Assessment of some Election Promises

Over the past three decades, the performance of Quebec’s economy was below that of the whole of Canada. Quebec needs to foster private investment and foreign trade, to reorganize its public finances, and fight unemployment. Do the promises of the election candidates satisfy these priorities?

On March 4, 2014, after eighteen months of minority government, Quebec’s Prime Minister, Mrs. Pauline Marois, announced the holding of a general election on April 7. As soon as the election was set off, the three main political parties, which are the Parti Québecois (PQ), the Liberal Party  of Quebec (LPQ), and the Coallition for the Future of Quebec (CAQ, for Coalition avenir Quebec), have started competing for the majority of the 125 seats in the  National Assembly making several promises.
The LPQ promises to increase private investment and create 250,000 jobs within five years through the Plan Nord, which is a program aiming at the economic development of the northern regions. The CAQ pledges to increase households’ purchasing power by abolishing both the health and education taxes, which will ease by about $ 1,000 their fiscal burden. As for the PQ, the outgoing government, it counts on its implication in the project of oil prospection and extraction at L’Île-d’Anticosti.

After presenting and comparing the performance of Quebec’s economy to the canadian Canada average, I present what should be Quebec’s priorities and very briefly assess the economic promises of the three main parties. My analysis of the condition of the economies of Quebec and Canada is a look at the growth rate of the gross domestic product (GDP) and that of some of its components, and the unemployment and inflation rates.

Economic Growth
The average annual growth rate of GDP in Quebec between 1981 and 2012 was 1.97 % versus 2.44 % for Canada as a whole. As you could see in the table below, the correlation between GDP growth rate and the growth rates of such expenditure as household consumption, business investment, and government spending are also lower in Quebec compared to the Canadian average.  

Table: Average Annual Growth Rate of Real GDP and some of its Components, and Correlation Coefficients, Quebec and Canada, 1981-2012, Data Source: Statistics Canada
Average Annual Growth Rate of Real GDP and some of its Components, and Correlation Coefficients, Quebec and Canada, 1981-2012, Data Source: Statistics Canada, Chained (2007) Dollars

In Quebec and in Canada as a whole, it is household consumption expenditure that stimulates growth. The contribution of consumption to GDP average growth is 1.33 % in Quebec versus 1.41 % for Canada. On Figure 1, I have broken down GDP average growth rate between its main components. 

Average Growth Rate of Expenditure-Based Real GDP and Percentage Contribution of its Components, Quebec and Canada, 1981-2012, Data Source: Statistics Canada
Figure 1: Average Growth Rate of Expenditure-Based Real GDP and Percentage Contribution of its Components, Quebec and Canada, 1981-2012, Data Source: Statistics Canada
Household consumption is an important and increasing component  of GDP in Quebec and Canada. Quebec as well as the rest of the country consume more than half of its production.

Figure 2: Share of Household Consumption, Business Investment, Government Spending, and Other Spending, in Real GDP, 1981-2012, Data Source: Statistics Canada
Figure 2: Share of Household Consumption, Business Investment, Government Spending, and Other Spending, in Real GDP, 1981-2012, Data Source: Statistics Canada
Figure 2 above shows that the shares of household consumption and government spending are more important in Quebec. On the other hand, as for business investment, its share in GDP is more important in all Canada than in Quebec.

Unemployment Rate
Unemployment rate, i.e., the proportion of the active population looking for a main work, is higher in Quebec. As one could see on Figure 2 below, the deviation of unemployment rate in Quebec from the national average is decreasing over time. In May and August 1982, this difference was at the high of 3.6 %. In February 2014, it came down to .8%.
Figure 3: Unemployment Rate, Quebec and Canada, 1981:M1-2014:M2, Data Source: Statistics Canada
Figure 3: Unemployment Rate, Quebec and Canada, 1981:M1-2014:M2, Data Source: Statistics Canada

Inflation Rate
All items consumer prix index (CPI), i.e., the ratio of their current price to their price in 2002, the base year, tends to be slightly lower in Quebec than the national average. The upper panel of figure 4 below plots the monthly CPI and the lower part of this figure plots the annual inflation rate, which is the percentage deviation of two successive annual CPIs.
Figure 4: Monthly Consumer Price Index (1981:M1-2014:M1) and Annual Inflation Rate (1981-2013), Quebec and Canada, Data Source: Statistics Canada
Figure 4: Monthly Consumer Price Index (1981:M1-2014:M1) and Annual Inflation Rate (1981-2013), Quebec and Canada, Data Source: Statistics Canada
 In 1993, the inflation rate in Quebec was 1.52 % lower than the national average but this gap is decreasing over time.

What Should Be the Priorities of the Next Government of Quebec?
  • Fostering private investment — As it appears in the second panel of Figure 2, the share of business investment in GDP has always been lower in Quebec relatively to the whole Canada. This average is 14 % in Quebec versus 17 % for the whole Canada.
  • Reorganizing the public finances – The third panel of Figure 2 shows that the share of government spending (the consumption and investment of the public administration) in Quebec’s GDP has always been higher, on average 29 % in Quebec versus 26 % in all Canada.
  • Fostering foreign trade – Net exports, i.e., the difference between exports and imports, are included in the other spending in the fourth panel of Figure 2.
  • Fighting unemployment – Quebec ranks among the provinceswhere unemployment rate is high in Canada.
A Brief Assessment of the Economic Promises of the Main Parties
The LPQ wants to revive private investment and create jobs through the Plan Nord. This promise satisfies three of the above priorities but does not tackle the issue of reorganizing public finances.
The CAQ wants to increase the purchasing power of households by abolishing both the health and education taxes. It also wants to reorganize public finances by freezing the number of civil servants. Increasing households’ purchasing power will stimulate growth. One could clearly see from the table above that there is a .81 correlation between household consumption and GDP growth in Quebec. But could the CAQ hold this promise? The PQ alredy promised in vane in 2012 to abolish the health tax. The CAQ takes seriously the priority of reorganizing public finances but does not say yet much about fighting unemployment and reviving private investment.  
The PQ wants to go on with its project of oil prospection and eventual extraction at L’Île-d’Anticosti. This project, if it comes true, will deliver jobs and generate revenues for the government. For the time being, no one can tell with certainty if there is oil at L’Île-d’Anticosti and for ecological reasons,  it is not everyone who is supporting this project. Besides, with its sovereignist speech, the PQ has to further demonstrate that Quebec could do better outside than within Canada.