Having faired relatively well in comparison to the other provinces in the latest recession, Québec is facing greater challenges on the long-term horizon. In fact, the gross provincial debt is expected to reach 53.2% of the gross domestic product, making it the highest debt-to-GDP ratio among Canadian provinces. In order to address the problem, the Québec government introduced a “skinny” Budget for 2010-2011 which sets forth a series of measures aimed at trimming back spending, reducing expenses and ultimately eliminating the budget deficit by the year 2014. The burden of such bold objectives will be split 62% towards reducing expenditures and 38% towards increasing revenues.
In this perspective, the Québec government vows to act accordingly by compressing the annual program spending growth from 4.8% to a mere 2.8% in fiscal year 2010 and 2.2% thereafter. On the other hand, the Budget provides for a tax increase for both financial institutions and mining industries as well as for the replacement of the international financial centers regime with a refundable tax credit. Furthermore, the Québec sales tax is scheduled to rise gradually reaching ultimately a rate of 9.5% in 2012. The Québec government also announced new measures to counter unreported work and tax evasion, thus enhancing the recovery of losses in government revenues.
Nevertheless, Québec is still committed to the pursuit of innovation and business development. In fact, the Québec government plans for positive adjustments to the refundable tax credits for the production of multimedia titles, the refundable tax credit for film dubbing along with the refundable tax credit for the development of e-business. Finally, the Québec Budget proposes to amend Québec’s tax legislation by following the federal government’s initiative of aligning its domestic tax rule with Canada’s international tax treaties by excluding disposition of shares and interests in partnerships or trusts that do not derive more than 50% of their fair market value from Canadian real or immovable property, resource and timber properties from the definition of “taxable Québec property”, hence providing relief from the withholding tax requirements and cumbersome compliance certificate procedures for non-residents disposing of such properties.