‘We trust citizens’: Quebec Finance Minister defends controversial $500 cheques as best inflation-fighting tool available

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Quebec Finance Eric Girard defended his controversial plan to make a $500 direct payment to more than six million Quebecers, insisting that it was the best tool available to help households offset surging inflation.

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The $3.2-billion pledge in Girard’s budget last week has been criticized by opposition politicians as the wrong choice, and by economists as an expensive election ploy that risks making inflation worse by pumping money into a strong economy. Girard acknowledged that a voucher program might have come with less inflationary risk, but he decided such an approach would have been overweening, adding that he’s confident that Quebecers will use the money on essentials such as food, clothing and transportation.

“We trust citizens to decide what’s important for them,” Girard said in an interview.

Statistics Canada’s consumer price index increased 5.7 per cent in February from a year earlier, the most in more than 30 years. Economists say the best way to deal with inflation is for the Bank of Canada to raise interest rates, and for governments to wind down the emergency benefits they put in place to fight the COVID recession. “It will help families in the short term, but in the long term I don’t think it’s the policy to solve inflation,” Decio Coviello, an associate professor of economics at HEC Montreal, said of the one-time payments, which will be sent to every Quebecer who earned $100,000 or less in 2021.

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However, with voters demanding help with elevated prices, politicians have been left with little choice but to react. Other provinces have been promising to do something about the cost of living, albeit none as aggressively as Quebec, where voters are scheduled to go to the polls on Oct. 3.

Opposition parties in Quebec City had suggested a number of alternative approaches, such as freezing Hydro-Québec electricity rates or removing the provincial gasoline tax. Prime Minister François Legault said this week that such policies only would have encouraged households to “consume more.”

Said Girard, in a speech to the Montreal Chamber of Commerce: “We are creating the best measures we can in suboptimal circumstances.”

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Indeed, direct payments to consumers to mitigate inflation are often seen as controversial by experts because they could add fuel to the fire by stoking demand. Desjardins Group chief executive Guy Cormier echoed Coviello.

“This $500, in the short term it’s a good measure,” Guy Cormier, chief executive of Desjardins Group, told the Montreal Gazette. “It gives people a breather this year, but it won’t solve everything. To fight inflation, you need governments with budget policies, central banks with monetary policy, and the tax policy.”

Rising inflation has put provincial and territorial governments on the spot to try to come up with programs to offset higher prices as they table their financial plans for the fiscal year starting April 1.

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New Brunswick and Prince Edward Island each increased the basic personal amount residents can earn tax-free. N.B. Premier Blaine Higgs went a step further, pledging to increase the province’s low-income tax reduction threshold and reduce property taxes.

Saskatchewan, Alberta, and British Columbia were less responsive. Saskatchewan allocated an extra dollar a day for welfare recipients, drawing criticism from poverty advocates. “Would members of cabinet be happy if what they were looking at for next month’s income was an increase in living from $9.50 a day to $10.50 a day?” Peter Gilmer of the Regina Anti-Poverty Ministry told CTV News.

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B.C. lowered child-care costs, while Alberta made no immediate provisions for inflation, but instead temporarily halted the provincial gasoline tax, a “back-door way” to circumvent the federal carbon tax in the province, Premier Jason Kenney said.

Girard chose to send cash transfers to consumers, but he could have used vouchers, an approach favoured by some economists. Chits that could be used only on essentials such as food and transportation would have ensured the money was used for its intended purpose.

In response, Girard said, “We prefer to give the money to Quebecers and they decide what is important for them,” adding that consumers are free to reduce or increase spending or simply save the payment.

The $500 figure was based on the differential between last year’s inflation rate, and this year’s. With Quebec’s fiscal regime indexed at an inflation rate of 2.7 per cent, and actual inflation in the province around 4.7 per cent, Girard’s department calculated that the average yearly consumer basket of about $22,000 had increased by about $440.

“It would have been $440, but we rounded up to $500. That’s how we came up with the number,” Girard said.

• Email: mcoulton@postmedia.com | Twitter: marisacoulton