Memo to Marois: Higher tax rates will mean less tax revenue

October 3rd, 2012

The most troubling aspect of the PQ's proposed tax hikes is that it reveals a delusional aspect to fiscal policy that when combined with its anti-plutocrat vocabulary and seeming ignorance of economic realities presents us with a poisonous brew.
Be clear on one fact. There has never been a western government that has managed to stay afloat, much less balance a budget, simply by raising taxes. Without policies encouraging economic growth, diversification of industrial development and cutting spending by cutting programs, raising taxes as a singular tool has driven nations into recessions and indeed near depressions.
"Tax the rich more" may sound good in the politics of the lowest common denominator, but its results are disastrous. It destroys incentive, reduces expansion, and paralyzes investment. And, the very people it means to tax, can easily move their primary residence over the border into Ontario. Hawkesbury's real estate agents have their phones ringing off the hook.
Quebecers are already the highest taxed citizens in North America. Under the previous government our recovery from the economic crisis has been better than many regions in Canada. But we're just starting to come out of it. We're not there yet.
The PQ's tax hikes will contract our economy because small business owners will not even think of expanding or hiring. And they are responsible for 80% of new jobs. Larger companies will shift operations to other more tax-friendly jurisdictions. Wealthy individuals will find tax shelter vehicles and choose domiciles in other jurisdictions. The only ones hurt will be the middle class.
The Marois government has already declared permanent moratoriums on natural gas development on the South Shore, oil exploration under Anticoati Island and an end to nuclear energy. It's also not fond of foreign investment such as Lowe's interest in buying a Quebec chain.
At the same time the cancellation of tuition hikes and the health tax will further strangle budget recovery. And the government proposes no other sources of new revenues, save taxation.
One does not have to look very far to see how misguided these policies are. In France, newly-elected socialist President Hollande's plan to raise the highest tax rates to 55% and 75% have already driven many of the leaders of French industry to seek residency outside of France. In fact, France's richest man Bernard Arnault founder of the LVMH conglomerate is now obtaining Belgian citizenship.
Once the drivers of growth leave, they rarely come back. They may continue operations in the jurisdiction they left, but they won't expand.
So what does that mean? That means that tax hikes will actually contract the tax base. There will be less companies to tax, less people working to get deductions at source from, and less capital gains to collect. The housing market, the key to full recovery because of its industrial and trade spinoffs, will come to a grinding halt.
The PQ must wake-up and realize that you can't get blood from a stone.