Cost of Revolution

Commentary, Equalization, Frontier Centre

Quebec’s generous welfare state would not be possible without funding from the rest of Canada

On June 22, Quebec celebrated the 52nd anniversary of the 1960 election that marked the beginning of its “Quiet Revolution” – a period marked by rapid modernization and the beginnings of a modern welfare state. Quebeckers feel pride at the mention of this period of their history, and rightfully so since they were no longer known as the “priest-ridden” province. In the current election in Quebec, this “landmark” date is hailed on all sides of the political spectrum to make their respective cases. However, few in Quebec will point out the extent to which the rest of Canada contributed to Quebec’s Quiet Revolution.

Between 1945 and 1955, the federal government opted to reduce its transfers to Quebec. Indeed, federal transfers to Quebec fell to $37 per person in 1955 from $101 in 1945. Relative to gross domestic product, federal transfers fell to 0.3% from 1.1%.

During that period, the provincial government opted to keep its spending under control at around 5.3% of GDP. Its total revenues also stayed stable at 5.5% of GDP. Each time the province ran a deficit, it compensated by a much larger surplus in following years, so the debt burden adjusted for inflation fell to $679 per person in 1955 from $1,245 in 1945. In this era of fiscal discipline, the provincial government opened up the economy to foreign investors and turned the province into one of Canada’s most fiscally competitive provinces. This was quite impressive, especially when contrasted to the pre-war period when expenditures rose to 8.95% of GDP in 1938, the highest point it would reach before 1961.

However, this would begin to change in the mid-1950s as federal transfers began to rise. During the 1950s the federal government began to multiply its interventions in the domain of welfare by attempting to fund numerous social programs for the provinces. This drive to ensure an equal basket of public services to Canadians – regardless of the fiscal capacity of the province they resided in – led to the creation of numerous federal transfers and ultimately to the equalization program. In spite of its virulent opposition to federal intrusion in areas of social welfare, the province of Quebec did benefit from a huge surge in federal transfers of all sorts. By 1960, federal transfers per person adjusted for inflation had risen to $172, or 1.5% of GDP.

Throwing fiscal discipline through the window, the provincial government embarked on a spending binge. Between 1955 and 1960, real expenditures per person increased by 51%, to 8.3% of GDP. In fact, 62% of the increase in spending per person for health care and education between 1945 and 1960 took place after 1955.

Revenues that did not come from federal sources did not rise during this period. Relative to GDP, the tax burden imposed by the provincial government essentially did not rise between 1955 and 1960 and stayed close to a 5.6% share of GDP.

Some argue that the foundations of Quebec’s Quiet Revolution were laid during the 1950s. Indeed, the vast surge of government spending between 1955 and 1960 for education, health care and social welfare became the foundation upon which Quebec’s modern welfare state would be built. What has been less emphasized in Quebec is the importance of federal transfers in funding those foundations.Advertisement

The additional layers that were to be attached to Quebec’s welfare state in the 1960s were also funded in large part by other Canadian taxpayers. After 1960, federal transfers to Quebec kept rising without any limit. By 1969, real transfers per person had risen to $581, or 3.4% of GDP. In that same year, real spending per person reached $2,726, or 15.9% of GDP. This was the result of Quebec’s drive to build a modern welfare state (both corporate and individual).

In spite of numerous tax increases in Quebec, Canadian taxpayers had to pay a growing share of Quebec’s welfare state. In 1955, they had to fork out a mere 5.6% of Quebec’s revenues. In 1960 and 1969, 20.3% and 22.7%, respectively, of Quebec’s revenues came from Canadian taxpayers. According to a different data set from Quebec’s department of finances, that share had grown to 26.4% by the first year of the Parti Québécois’ stay in office.

Economically, Quebec has lagged behind the richest parts of Canada for many decades. Hence, its tax base is smaller but its welfare programs have been among the most generous in Canada since the 1960s. On its own, Quebec would never have been able to construct such a large welfare state. Thanks to federal transfers, Quebec has been able to live beyond its means for decades. That is something Quebeckers should bear in mind.

Vincent Geloso is a PhD candidate in economic history at the London School of Economics.