In the early 1980s, Quebecers’ standard of living, expressed in Canadian dollars, was only 5.8% below the OECD average (of 19 member countries).
The situation has deteriorated sharply over the decades. By 2021, the lag had dropped to 20%. Our standard of living ($58,642/inhabitant) showed a difference of $11,956 per inhabitant compared to the OECD average ($70,598/inhabitant).
Compared to the Canadian median standard of living ($65,651/resident), Quebecers lagged behind by 12%, or $7,000 per capita, in 2021.
And our standard of living difference between Quebec and Ontario was $5,960 per capita.
“About 48% of this gap can be explained by Quebec’s productivity gap, and the rest by lower labor intensity and employment rate,” explain the authors of the study, Productivity and Prosperity in Quebec, Report 2022, just released by HEC Montréal’s Center for Productivity and Wealth (CPP).
What do researchers Jonathan Deslauriers, Robert Gagné and Jonathan Paré recommend to improve our lot?
“Given that the job catching-up process is long overdue and the aging of Quebec’s population is at its peak, productivity will be the only lever by which the Quebec government will be able to support the growth of its economy and boost to catch up the impressive backlog that has accumulated over the past 40 years. »
THE CHALLENGE
In 2021, the Quebec government gave around $2.4 billion in tax credits to businesses. This is, under all circumstances, double the value of the loans offered by the Ontario government.
Was it good advice? Absolutely not, say the authors of the annual Quebec Productivity Portrait report.
Because of this, they offer several recommendations to help the province improve its productivity performance.
“Without deep reform of its many business support policies, not only will Quebec fail to meet its goal of matching Ontario’s standard of living by 2036, but the province risks falling into the same spiral that has afflicted Canadians economy since 2015,” argue Deslauriers, Gagné and Paré.
“In the short term, they add, Quebec risks hitting a wall if it doesn’t embark on a deep reform of its industrial policy, which, as it stands, is aimed at the wrong goals. »
OUR PROBLEM ?
What’s our big problem? More than 80% of the tax support that the Quebec government provides to companies in the form of tax credits is irrelevant: the government support is aimed at boosting employment in times of labor shortages, when it is more intended to boost competitiveness.
Consequences ? First, large companies benefit the most, to the detriment of smaller companies. Second, Quebec’s productivity is still seriously lagging behind.
THE SOLUTION ?
Quebec needs to review its industrial policy. Instead of paying out billions in tax credits, the study authors believe the government of Quebec should instead lower the tax burden for companies. This greater latitude would allow companies to compete “through a healthy competitive mechanism,” the study’s authors believe.
In their opinion, the question of productivity is the only real lever for long-term economic growth that will allow us to clear the economic backlog that has accumulated over the past forty years.
To do this, the Québec government needs to do more to support small businesses by improving the competitiveness of their specific tax regime.
