Greece the country that started democracy, creator of the Olympic games and could be the first country forced out of the Euro zone. Greece is in financial dire straights and even with the massive bailouts continues to struggle to return its debt to a more manageable level. The country is aiming for 120% of GDP down from the current 150%. This has lead to massive job cuts, cuts to government services and massive unemployment as many Greeks are employed by the government. With the recession of 2008 many Greeks employed by private industry lost there jobs and now with public cuts around 1 in 4 is unemployed. What does this have to do with Quebec and Canada?
As many know there is massive nightly protests against the government which started with the plan to raise tuition. Quebec students were furious to learn that the government would be doubling their tuition from 2,250 to 4,500 over a 5 year stretch. The government claimed that they were doing this to help keep universities operating at a peak level and to reduce the amount they paid for these colleges. The clashes started even after the government offered to extend the increase the time it took to reach the new tuition cost and offered more help for needy students. Months earlier in Greece, students and other workers protested the changes by the government. They were extremely angry that the government would start charging them for post secondary education and felt that it was there right to study beyond high school. They protested for months like the Quebec students are now and felt that the government had been betraying them. In the end, both governments were trying to do the same thing: survive.
Quebec’s debt to GDP ratio may not be as high as Greece’s it is certainly worrisome for the country epically when they try and relieve some of the pressure by asking others to pay there way through. Quebec’s debt stands at $160.117 billion (2011) or 53.7% of GDP which is the highest of any province in Canada. To add to that there are other obligations that Quebec has (Quebec hydro, municipal etc) that pushes it even higher $218.48 billion (2011) or 76.2% (GDP). Finally with the % of the federal debt included that number rises to 117.6% of its annual GDP. Much closer to where Greece currently wants to be after the bailouts. One of the issues for Quebec is that the people are already the highest taxed in the country and going to ask for more is a political nightmare.
“Income tax makes up between 30.5% and 37.6% of the family’s tax
bill. The highest rate is in Quebec, where the average family provides 37.6% of its taxes in income tax”
With people already paying massive amounts in taxes they are usually unwilling to provide more to pay for different services. Its shown in the Quebec student protests that the people are unwilling to accept more costs when they already pay some of the highest taxes in the country. While it will be necessary for more items like colleges/universities to accept more of there own cost and receive less from the government to allow for debt repayment the challenges presented by the people might be fierce. The government has a plan to start repaying its debts at a faster level and reduce its debt to GDP ratio to 45% the challenges might be too great for governments to overcome. Challenges like the voters, political challenges (new governments, spending pressure) and economic issues like recessions or slowdowns.
The government of Quebec just finished a stimulus package to help reduce the effects of the 2008 downturn but will only return to a black budget in 2013-2014. As of 06/21/2012 there are increased risks with banks as Moody’s downgraded 24 international banks, plus the pressure from the Euro Zone and a slow down in Chinese manufacturing. These pressures could help slide the world into another major recession and increase the already high 8% unemployment in Quebec. The internal pressure could force the government to implement another stimulus strategy and add to the growing amount of debt it has. These risks all add up when the government tries to plan its debt payment plan. These all provide stumbling blocks that could hamper the plan and return Quebec to its old spending ways.
While the Quebec government looks at ways to reduce the amount it pays to help push down the debt there will likely be pressure from internal to help reelect MPP’s to office. Announcing projects and spending money seems to be the ways its done in Canada. With major road reconstruction projects needed in the future in Quebec’s majority cities keeping the course of debt payment could be problematic. There is also one more major problem for Quebec that is beyond its control. The Federal government sends huge amounts of cash to Quebec to help buy votes and keep the people happy. With austerity here this could become a huge issue between Ottawa and the Quebec government. Transfer payments have been an almost guaranteed source of income for the Quebec government and run around 10 billion dollars a year (more then any other province). The federal government has also taken on huge projects like the Jacques Cartier Bridge (5 billion) and more. Any reduction in the amount of money given to the province or money spent in the province would provide another trouble point for the Quebec budget.
The province is a while’s away from needing the type of bailouts that Greece has seen but there are a lot of the same characteristics that have plagued both areas. Ineffective government – Not able to stand up to the people are provide direction but rather gave in to whining. Ineffective management – Quebec and Greece have increased there spending to appease voters and win time in government while the finances have been hammered. While the Quebec government has a plan to reduce its spending and debt levels its easier said then done and will likely never see the 45% they want.
This level of debt along with the province of Ontario’s growing debt are leading us towards a route we do not want to be in. We do not want to be in the position where foreign countries or banks are running the province and we have no control. Canada and the provinces need to create a plan to reduce the amount of debt we hold. They need to lead the way and show the average consumer that they cannot continue to purchase without consequences. We need the proper leadership that wont favor anyone or sweet talk us into reelecting them. We need action and it needs to start now.
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