In December 2012 German Chancellor Merkel warned Europe that, with 7% of the world’s population and 25% of its GDP, Europe could not continue to spend 50% of global social spending.

A similar comparison is currently making the rounds in Quebec: 23% of Canada’s population generating 20% of its GDP cannot indefinitely sustain 27% of Canada’s social spending.

Social spending is not Quebec’s only concern. Quebec is Canada’s most indebted province per capita, it has a yawning spending deficit, the highest personal income taxes, a low workforce participation rate, poor demographic trends, and an economic growth rate consistently lower than the national average.

All of the above is not new and has been a perfect storm in the making for quite sometime.  What has changed in the last year or so is that there is now a broad based consensus that the current state of affairs is unsustainable and that real change is required.

In the April 7, 2014 election 65% of the electorate (Liberals (41.5%), Coalition Avenir Quebec (23.1%)) voted to the right of the social democratic platform of the Parti Quebecois while only 10% of the voters voted on its left.

A debate, of course, is brewing as to what changes should be made and who will bear the brunt of such changes.

In his May 21 inaugural speech before the National Assembly Prime Minister Philippe Couillard listed some of his government’s priorities:

  1. The government will seek to reduce spending first and then, once state finances are stabilized and in the black, reduce the tax burden.  Conveniently, this lack of enthusiasm first to reduce taxes was roundly criticized by the more right wing Coalition Avenir Quebec, thus allowing the Liberals to appear cautious and moderate.
  2. Economic growth will be encouraged with northern development (Plan Nord), mining, and some small hydro-electric production being identified as priorities.
  3. Oil and gas development will be the subject of (yet more) environmental studies with the hope that some exploration and development will ensue.
  4. All government programs will be reviewed by a commission formed for such purpose, with health probably being one of the first targets (health expenditures consume about 43% of Quebec’s budget and they are growing faster than inflation). Interestingly, this review will also includeQuebec’s relatively generous business assistance programs.

Finance Minister, Carlos Leitao, is scheduled to table Quebec’s 2014-2015 budget on June 4, 2014 and we shall soon be enlightened as to how Quebec will tame its structural deficits and ensure sustainable private sector led economic growth.