Quebec: Canada’s debt bomb

$248,355,416,269.56. That's the Quebec government's public sector debt at the time of writing this column (it will have gone up by several million dollars by the time you read it).

That's $31,157 for each Quebecer. Or, if you prefer to focus on those who are actually going to contribute to servicing this debt, $63,710 for every taxpayer.

Readers in Ontario will think they have their own public finances to worry about. With a $16-billion deficit in the fiscal year just ending, and a lot more to come unless drastic cuts are being made in the coming budget, Ontario is rapidly catching up to Quebec.

But Quebec remains the Canadian champion, and one of the most indebted societies in the industrialized world behind Greece, Japan and Italy. It also happens to have the most rapidly greying population in the country. And one of the most interventionist governments on the continent, with no more room to increase taxes.

What's worrying is not just the numbers, but the fact that so many people wear rose-tinted glasses and don't even see this level of debt as a problem.

One argument that seems to have caught the fancy of big government supporters in the province is that we not only have big debts, but also big assets. They note that someone with a mortgage of $500,000 is not in trouble if his house is worth $800,000. Quebec owns vast swaths of land, roads, hospitals, schools, hydro dams and countless other resources that can be used as collateral.

There's some truth in this — but only up to a point.

It's easy to sell your house if, for some reason, you need cash to meet your financial obligations. But most assets owned by Quebec cannot readily be sold. There is simply no market for many of them. And in cases in which it would be feasible and make sense — selling Hydro-Quebec for example, or the liquor monopoly — there is no political support to do it.

Practically speaking, the debt will have to be paid back with taxes, from a dwindling proportion of working taxpayers.

Which leads us to a second problem. A homeowner's equity is not going to be of any help if he loses his job or if interest rates suddenly go up and his monthly payments become unaffordable.

The cost of servicing Quebec's debt will go up by more than 10% next year. That's at a time when things are relatively easy for debtors. We are in a period of historically low interest rates, artificially engineered by central banks madly printing money to keep their economies afloat. This is not going to last forever.

And what if higher rates come with another global economic downturn? The Greek scenario could repeat itself in many other countries.

Nobody denies that debt can be a useful financial tool for individuals, firms or governments. That's not the issue. The issue is the level of debt in relation to overall wealth and the capacity to service it. We live in a world where governments — and a great many firms and households — have lost sight of the need to ensure that such basic ratios don't get out of whack.

Quebec is an extreme case within Canada. But if the situation turns sour, no region of the country is going to escape the impact.

Michel Kelly-Gagnon est président et directeur général de l'Institut économique de Montréal.
* Cette chronique est publiée dans les journaux de Sun Media, tant dans ses quotidiens présents dans plusieurs des marchés urbains canadiens les plus importants (Toronto, Ottawa, Calgary, Edmonton, Winnipeg et London) que dans ses 28 quotidiens régionaux.