PQ study on an independent Quebec’s finances is fundamentally flawed, economists say

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QUEBEC — A 2023 Parti Québécois study on the finances of an independent Quebec is full of errors and based on fragile, overly optimistic economic forecasts that underestimate the reaction of the rest of Canada to what would be a “radical rupture” in the way things are now,  a new analysis concludes.

In the first detailed examination of the PQ’s October 2023 document Un Québec libre de ses choix: Finances d’un Québec indépendant — often referred to as the Year 1 budget of the new theoretical country — three economists with federalist roots and André Pratte, a Quebec Liberal Party executive member, pick apart many of the 82-page study’s premises.

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The PQ’s document, produced by another team of economists and a former PQ finance minister, concluded a separate Quebec would be able to stand on its own economically and benefit from an additional $82.3 billion in revenue because money would no longer be flowing to the federal government.

But the authors of the new 24-page report say that while they do not question the legitimacy of the independence movement or the idea Quebec could be economically viable, they do wonder at what cost and whether Quebec would be better off as a country.

In that sense, the authors say, the PQ’s Year 1 budget missed the boat in explaining the sovereignty option, resulting in a study that rests on “unrealistic premises and regrettable omissions.”

“Un Québec libre de ses choix is simply not a rigorous document on an economic and budgetary level,” the authors conclude in their report, which is being made public Wednesday and was obtained by The Gazette in advance.

“It amounts to political advocacy of which the economic fundamentals are extremely fragile.”

Contrary to the conclusions of the PQ’s document, independence would probably leave Quebec “in a very difficult financial posture, forced to either reduce services to Quebecers or impose an even greater fiscal burden than citizens already shoulder,” the new analysis says.

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The report was produced by veteran economists Robert Gagné, a professor at HEC Montréal and the head of the school’s Centre for Productivity and Prosperity; Louis Lévesque, a former federal intergovernmental affairs deputy minister; and Alain Paquet, a former Quebec Liberal junior finance minister who was the MNA for Laval-des-Rapides from 2003 to 2012.

Pratte, a former journalist and senator who is now chairperson of the Quebec Liberal policy committee, wrote and edited the final text of the document. Pratte, however, stressed that the report was not initiated or in any way endorsed by the Liberal party.

It examines the PQ’s document in detail, noting the costs of separating are “largely underestimated,” in particular the level of the federal debt Quebec would have to assume upon leaving the federation.

The authors doubt Ottawa would let Quebec walk away assuming only 16.97 per cent of the total national debt, as the PQ proposes. They say that amount does not take into account the province’s share of the population; other federal costs, such as paying pensions, that Quebecers benefit from; or the costs of transfers to the provinces.

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The Pratte group says Quebec’s overall share of the federal debt would be $53 billion more than the PQ estimates. Because an independent Quebec would not have the same credit rating as Canada, financing such a debt would cost about $4 billion more than the PQ estimates, they say.

The report also doubts the transition to nationhood would be as rosy as the PQ says, predicting “a period of economic uncertainty and sluggishness” and very difficult negotiations with Ottawa — a situation illustrated in abundance when the United Kingdom left the European Union under Brexit.

In presenting the PQ document, party leader Paul St-Pierre Plamondon said Quebec would save money by not having to support the costs of the Canadian military. An independent Quebec’s own modest defence requirements would cost $3.6 billion a year, according to the PQ.

The new report, however, notes that would represent only 0.65 per cent of Quebec’s GDP, while the standard now set by NATO is two per cent (a number Canada is not attaining). Reaching two per cent would cost the new country of Quebec an additional $8 billion a year, the authors say.

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The study questions the PQ’s premise that Ottawa provides very few real services to Quebecers and so dropping out of the federation would be relatively easy.

Ottawa, in fact, provides services including defence; border controls for people and goods; approval of new drugs; air, maritime and rail security; food inspection; administration of fisheries; census taking; justice and diplomatic services; and monitoring of the environment, including producing meteorological data.

The report also notes transfer payments from Ottawa pay for health and social services administered by Quebec.

Assuming many of these responsibilities would cost the new country a bundle, while the efficiency gains the PQ is banking on for now remain “myths resting on implausible assumptions,” the report says.

The PQ’s document, for example, makes no mention of the fate of the 60,000 Quebecers who work in the federal public service.

The new report says the PQ also takes for granted that a declaration of independence after a referendum would have no economic impact — “that is to say no uncertainty, no investor nervousness and no exodus of part of the population.”

The authors note the PQ document makes no mention of the known risks associated with a new currency or that the transition period would most likely be “long and difficult,” featuring arduous negotiations with Ottawa.

And whether the new country chooses to keep the Canadian dollar or float a new currency, the authors say, Quebec would be at a disadvantage because it would not benefit from Ottawa’s deep pockets in the event of a global economic crisis, such as the COVID-19 pandemic.

pauthier@postmedia.com

x.com/philipauthier

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