Understanding Quebec’s Debt (YouTube)

By Eric Pinault

Originally published on: November 10, 2014

See original French version: https://www.youtube.com/watch?v=z2uqoP4kxz0&feature=youtu.be

Title: Understanding Quebec’s Debt

Eric Pinault, speaker: In order to demystify it, I’ll go over this [notion] again as well as the question of servicing the debt.

Slide 1:

1 – State of affairs

Quebec’s national debt in 2012-2013:

– 175 500 000 000$ (49% of the GDP)
– 43 804$ per taxpayer

Let’s look at the number that’s there: 175 billion dollars. That’s a lot of money. It represents 49% of the GDP. What does the GDP represent? It’s the total goods and services that we produce in Quebec in one year.

I would like to go further. What is this debt? What is the calculation of the net debt? There are three ways to calculate a state’s debt:

There’s the gross debt [on-screen title]

The gross debt comprises the totality of the government’s commitments. What does that mean? That means all the savings bonds they sell – I have many of them, that’s how I save money – those represent one form of commitment. And the promise to pay for a public sector worker’s retirement in 3 years, 10 years, or 25 years, that’s a commitment, so we put that in there. We take all the commitments and that gives us a very big, immense liability, and we don’t count any assets. That gives us the gross debt. That gives us a catastrophic value, 90% of the gross domestic product, which is easily double or triple [the amount on the screen]. That puts us close to Greece and we’re on the verge of bankruptcy. And usually, when we present that number, they make the numbers spin in real time. The number just grows and it makes people really scared. As soon as someone starts talking to you about gross debt, tell them to stop talking, they’re being impertinent.

Now we’re going to take all liabilities alongside all assets. That gives us the net debt [title on screen], the assets and liabilities next to each other. So we will take the liabilities of the pension plan but we will take the money that is in the pension plan. On the one hand, we’ll take the RREGOP [Government and Public Employees Retirement Plan], but not only from the side of committing to pay a pension to any civil servant who has contributed 25 or 30 years of service – I’m unaware at the moment what the math is. And on the other, we’ll take the Caisse de dépôt et de placement [important institutional investor that manages funds primarily for public and parapublic pension and insurance plans in Quebec] and we’ll assume that both side are equal. So we take both amounts and we put them side by side [to calculate the debt].

The third way of calculating the debt is to consider the money owed to creditors [title on screen]. When we try to calculate our credit rating in Quebec, when we’re talking about the debt, we’re also considering creditors, as in people who possess bonds or who have lent money to the government. That debt is even smaller than this one [on the screen]. It’s this debt that determines the cost of servicing the debt [points to the value of this debt service burden on the screen, 11% of the budget], which is this amount [points to 9 800 000$/year]. This value is the debt owed to creditors. To whom do we owe that debt? That’s the first question we must ask ourselves: to whom do we annually give those 9 billion 800 million dollars? They’ll say that we owe that debt to institutional investors, “inins”. We owe the debt to them. Oh, that’s frightening, institutional investors are massive, looming… They are in fact our pension plans.

Our pension plans are the largest portion of that debt. Insurance companies, such as life insurance and automobile insurance companies, need the debt. Pension plans need the debt. Banks need the debt. Why do those three financial institutions need debt? Debt is not only advantageous to those institutions, it is crucial because state debt is guaranteed [title on screen: guaranteed asset]. Nothing beats its price-quality ratio. Also, it lasts a long time [title on screen: long term]. A bond lasts from 10 to 40 years. Insurers, pension plans and banks need, thirst for public debt. They need it. If they cannot buy debt from Quebec, they will put pressure on the government for it to generate more. With regards to those people and to people like us, who own RRSPs and insurance policies, that debt is also an asset [title on screen: creditor debt = asset]. So what does paying back the debt mean? What does the Fonds des générations concretely mean [The Generation Fund, a trust fund created in 2006 by the government to reduce both the public debt and the ratio of gross debt to GDP]? It means the removal of the possibility for us to purchase a guaranteed bond over 20, 25, 40 years. It means the removal of the possibility for us to invest in our collective wealth.

As individuals, and some of you here are members of the ACEFs [Association coopérative d’économie familiale, a cooperative resource for families and individuals to understand public and personal finances launched in 1965] so you’ll know what I’m talking about. As participants in the financial realm, we are bound to the principle of reimbursement. That means that when we accumulate debt, it means that one day, we’ll have to pay it back. A state has no obligation to reimburse debt [title on screen]. If every state pays back their debts tomorrow morning, imagine the calamity for all the banks, pension plans and insurance companies. It would be a catastrophe for capitalism. States are bound to refinancing [title on screen]. They need to be able to refinance their debt for all eternity. They don’t have to pay it back, they have to refinance. If we cannot refinance, we hit a dead end. Greece could no longer refinance. Spain had problems refinancing its debt. Both states protected their banks too heavily during their crises.

As long as the debt is maintained to a certain proportion of the economy, everything is ok. No one looks at this number [points to the dollar amount of the gross debt [points to 175 500 000 000$ on screen]. It’s this number they care about [points to the gross debt to GDP ratio of 49% on screen]. That value of 49% of the GDP can fluctuate in two ways: if you have an economic growth rate of 4 % [title on screen] and your debt increases by 3% [title on screen], your debt is reduced by 1% [title on screen] per year. But if you have a growth rate of 0.7% in your economy, as is the case right now, because of the government’s austerity measures, then your debt increases more rapidly. In Quebec’s history, periods that have seen the debt to GDP ratio decrease were periods of greater economic growth.

We’re going to do the same thing with the other value here [changes slide to Debt to creditors slide] that frightens us. 11% of the budget, 9 billion dollars. What makes this value fluctuate? The higher the debt, the more interest we pay. But, interest rates [title on screen] of 5% or 1% make a huge difference. But when we’re are a debtor, when we owe money, inflation is our friend [title on screen]. When we are a creditor, when we live off of others’ debt, inflation is our enemy [title on screen]. The best way of decreasing a debt is though inflation. Now, inflation is rarely above 2%.

All that to say that the way debt is represented is political. Are we able to sustain who we pay it to and to what it corresponds?


Translated from the original French by Language and Dissent, a collectively-run blog supporting the anti-austerity struggle in Quebec. These are amateur translations written by volunteers; we have done our best to translate these pieces fairly and coherently, but the final texts may have their flaws. If you find any important errors in any of these texts, we would be very grateful if you would share them with us via email (languageanddissent [at] gmail [dot] com). Please read and distribute these texts in the spirit in which they were intended; that of solidarity and the sharing of information.

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