Categorized | Housing Bubble

Quebec’s Debt Problem Will Get Worse With the P.Q. Not Good For Real-Estate.

Quebec’s provincial elections took place last night and Pauline Marois from the Parti-Quebecois (PQ) made history by being the first elected female premier to win. The PQ won 54 out of the 125 provincial seats. What does this mean for businesses and individuals in Quebec?

Although The PQ won with a minority government, the economic consequences can still have adverse repercussions for its citizens and undermine the rest of Canada. The Parti-Quebecois is known for its socialist agenda, big government, high taxes, and over-burdensome business regulations. As it was pointed out in a previous article Mo Government Mo Problems, the PQ, if in power long enough, may further hurt the local economy and continue to push jobs out of Quebec. In 2011, employment grew in every Canadian province except for Quebec. While Alberta gained nearly 100,000 jobs in 2011, Quebec lost 56,000 jobs. However, Quebec was under the leadership of Jean Charest from the Liberals in 2011. If the liberals, with their comparatively conservative government, managed to lose jobs, how will the PQ fare with their higher tax policies and burdensome regulations?

Under the new proposed  PQ tax plan, the highest income earned tax bracket will be 55%, up from 48.22% and the capital gains inclusion rate would increase to 75%, up from 50%; the dividend tax credit would also be cut in half. Quebec already pays the highest tax rates in the country, this becomes very worrisome for high net worth individuals, as this will drive more people out of the province and thus lose more jobs.

I have truly had a hard time finding a jurisdiction with a higher income tax rate than Quebec. Sweeden and Andora have 57% and 58% respectively, about the only two I could find. Nevertheless, this is hardly a victory. Higher tax rates discourage businesses and people to work. However, if you are someone who receives social security, this can surely be beneficial: you get more social programs at the expense of the general prosperity of everyone else. At the end, higher taxes breeds a social class of dependency on the government, precisely the fate of Quebec.

To add fuel to the fire, Quebec is also the province with the highest debt, 253 billion, and growing at a pace of about $20 million a day. See the video below about Quebec’s debt problem. Quebec is ranked the fifth largest debtor in the world by the IEDM, right after Greece and Iceland. Expect this number to increase even more as the PQ tries to enact their tax hikes, as more and more high net worth individuals leave Quebec.

Here is the PQ spending plan (in French only).

Let’s not forget about Quebec’s dependency on Canada for transfer equalization payments. Quebec in 2012 is expected to get 7.391 billion from this program, more than double of any other province. Who is providing this payment? Alberta, Saskatchewan, and British Columbia– Western Canada, the provinces that have the lowest regulations and highest job creation.

Montreal Real-Estate Collapse?

More debt, higher taxes, more unemployment cannot be good for people owning real-estate in Quebec, as real-estate is a function of jobs and income. As people lose their jobs and incomes they will default on their mortgages or not pay rent. Coupled with Quebec’s already tough rental board rules along with a new socialist government, tenant eviction could also be a not an option or much tougher. Thus leaving landlords with reduced rental income or non-paying tenants.

If you are still not convinced that this is bad, what about the higher property taxes you will be faced from a desperate government wanting to pay for its bills? or increased utility bills from the resulting inflation that our government is creating?

Still not convinced? what about the increased property vandalism from tenants or from theft? the resulting increased insurance premiums?

At a time of a global debt problem, the cure is to reduce debt and return to sound economic principals and not to increase debt, raise taxes and regulations. This is NOT GOOD FOR REAL-ESTATE! AND IM NOT EVEN GOING INTO MONETARY POLICIES (HIGHER INTEREST RATES!!)

Post your thoughts below.

 


  • Anonymous

    You are definitely right!

  • jim

    Even with all of the problems you have stated, Quebec is still a better place to invest than the US. I know, I am American, and the local laws in the US have become much worse in the past ceveral years.

    • http://www.economicreason.com Chris Ferreira

      Maybe, but not the way the PQ is going. Pauline Marois is imposing reckless laws that will drive out the rich and entrepreneurs.

  • claude fortin

    Hey right winger , you don’t know that the liberal of Charest in Quebec goes hand on hand with mafia mobs , YOU ARE JUST A BUNCH OF STUPID RIGHT WINGER , Take a look at the Comission Charbonneau , Let me laugh with the IEDM stastitic . Sorry for my english .

    • Cynthia

      you are probably right about that, but what does that have to do with Quebec’s debt problem?

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