Saturday, February 24, 2007

Why Quebec Can't Separate

Given that the Quebec provincial budget was recently released, I'd like to take this opportunity to explain, once more, why the economics of reality force Quebec to remain a part of Canada.

Let's start with the interesting fact that federal transfers comprise 17.2% of the provincial government's revenue. Toss in a few dollars to fix the mythical fiscal imbalance, and we're easily looking at 20%. Combine this with the fact the average Canadian taxpayer is unlikely to keep supporting a Quebec that's a nation in more than name, whoever is running Quebec in this hypothetical future has serious fiscal issues to deal with, especially as Quebec already carries the highest debt load in Canada (44% of GDP).

Over the last decade, Quebec has managed the smallest productivity growth of any province, at only 1.3% a year. This is the source of the majority of per-capita growth, since capital accumulation is subject to severly diminished returns, mostly due to the large amounts of capital already in use. However, this is tolerable. But the story isn't finished.

Quebec is in further trouble due to their demographics. Long story short, in less than two decades, they're looking at negative population growth, even barring substantial immigration, which is unlikely. See, for example, Herouxville. Finally, the aging population is going to only increase its already-insatiable demand for health care and other government services.

So, we've got debt, compounded with fewer workers supporting an increasingly elderly population, that would have to voluntarily sacrifice 20% of its revenue to achieve a goal with questionable motives in the first place. This isn't even counting the currency issues and business outflow. Montreal still hasn't recovered in a corporate sense from the referendum scares.

The only thing that makes me hesitant to prescribe a soothing rest for federalists is our history. We have a peculiar habit of venerating a man that did his very best to wreck the economy through truly massive government spending, such that he nearly brought the country to the point of declaring bankruptcy. I speak, of course, of Mr. Trudeau, whose economic record should be enough to make even his fiercest defenders blush crimson.

And he, after all, was from Quebec. Sadly, economic rationale isn't ever going to be a compelling reason on the seperation issue. I would, however, be confident that if Quebec ever does become a nation in more than a symbolic sense, the honeymoon will end quickly with pleas to jump back into the Canadian fold.

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