Quebec and Ontario, the twin pillars of the Canadian federation, have much in common given that they share the economic space of the Windsor-Quebec axis – an economic region nestled around the Great Lakes-St. Lawrence waterway. Once upon a time, they were even one province but that fiery marriage had its ups and downs and was broken up by Confederation which created a new family living arrangement.
While Quebec has historically always had the weaker economy relative to Ontario and been more transfer dependent for its provincial revenues, what is quite interesting is how quickly Ontario’s public finances have deteriorated relative to Quebec’s. The accompanying figures are based on the Federal Fiscal Reference Tables and show data up to the 2010-11 fiscal year. While Ontario’s per capita net debt and its net debt to GDP ratio are still below Quebec’s, it has been running up much larger deficits as a share of GDP. At the peak of the downturn in 2009, Ontario’s deficit to GDP ratio was more than twice that of Quebec’s. One might argue that Quebec had more stable revenues given its larger federal transfer revenue share of provincial revenue as well as the fact its income tax rates are higher than Ontario. However, Ontario’s federal cash transfers as a share of provincial revenue rose much quicker than Quebec’s. Between 2001 and 2010, federal transfers as a share of provincial revenue in Quebec rose from 20 to 25 percent. In Ontario, they went from 11 to 22 percent.
So, can Jean Charest market himself and his government as better economic managers than nearby Ontario? Well, certainly not in terms of the debt picture which is still worse than Ontario’s. However, when it comes to recent fiscal restraint, Quebec has likely been doing a better job than Ontario. The primary piece of evidence is the lower deficit to GDP ratio in Quebec. Indeed, Quebec’s government is planning to balance its budget by 2014 while Ontario is apparently on track to do it by 2017. This would suggest that Quebec has been more focused on public sector restraint. More evidence? It is Quebec that has seen its streets full of demonstrators rather than Ontario. Despite a pronounced marketing campaign built around the Drummond Report, fiscal restraint in Ontario has been more muted in both its implementation and its effects. Ontario’s minority government with its political balancing has been a factor in this though it must be remembered that even with a majority, the Ontario Liberals still did not tackle the public finances. Come September, the political landscape may change in both provinces and then it may not. The fiscal situation and political soap opera it generates will go on.