Why Quebec is closed for business

La Belle Province comes close to dead last in almost every measure of private sector investment

REUTERS/Mathieu Belanger

Mathieu Belanger/Reuters

It’s been a little more than a month since the Liberal government of Quebec Premier Philippe Couillard released its belt-tightening budget, and since then everyone from movie producers and doctors to teachers and mayors has griped about the cuts it promises. They shouldn’t be surprised. Couillard campaigned on a pledge to fix Quebec’s “economic fiasco.” But a new report from the C.D. Howe Institute offers a stark reminder of how difficult that task will be.

The report, authored by Philip Cross, the former chief economist at Statistics Canada, shows the extent to which the economies of Ontario, Quebec and the Maritimes now rely on public sector versus private sector investment for growth. Condensed version: a whole honking lot. Investment spending refers to money spent on structures, machinery and equipment, and since 2000, the report notes, public sector investment as a share of GDP has nearly doubled in Quebec to almost six per cent. At the same time, business investment—you know, by actual companies—has stagnated at seven per cent. That’s put Quebec near the bottom of the pack, alongside Ontario, and a notch above New Brunswick and Nova Scotia. “Business investment is the lifeblood of economic growth,” Cross wrote in an opinion piece. “It determines what the economy will look like years from now, and how competitive its workers will be.”

Of course, to have business investment, you’ve got to have businesses. And that’s where Quebec faces serious problems that run far deeper than any single austerity budget can hope to tackle. In December, Statistics Canada released a largely overlooked research paper that examined the rates at which new businesses have been joining and leaving the marketplace in each province. The creation of new firms and the destruction of old ones, through consolidation or closure, is key to a vibrant economy, bringing in new ideas and innovations and forcing existing businesses to pick up their game. You can probably guess where Quebec ranked, but I’ll tell you anyway. From 2000 to 2009, no province had lower so-called “firm entry” than Quebec. In fact, in the manufacturing, retail, transportation and finance sectors, more companies went away than were created. No other province had that level of “destruction” without the customarily accompanying “creative.”

Related:

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Why Justin Trudeau risks alienating Quebec

It gets worse. Another report from a few months ago, the Global Entrepreneurship Monitor, measured the levels of entrepreneurialism across Canada. It did so by looking at the percentage of working-age adults who are either engaged in setting up a business or who own a wage-paying business that’s existed for less than 42 months. On that front, too, Quebec came dead last, with an entrepreneurship rate of 9.6 per cent, compared to 11.9 per cent in Ontario and close to 19 per cent in Alberta.

Quebec

Source: Global Entrepreneurship Monitor

Sylvain Carle, an entrepreneur in Montreal who’s started several companies, recently shared an anecdote with the Montreal Gazette that sums up Quebec’s sluggish start-up culture. While attending a conference at Stanford University, a speaker had asked how many people in the audience of 100 were starting their own companies, and 105 hands went up, since some were multi-preneurs. When Carle asked the same question to a similar-sized audience in Montreal a few weeks later, five hands went up.

It doesn’t take an advanced degree in rocketry to know why all this is the case. For decades Quebec businesses have been plagued with repeated bouts of separation anxiety and the constant irritant of the province’s language police. The province punishes businesses with some of the highest taxes in North America, yet it has rung up a $2.4-billion deficit and a debt load equal to half its GDP, the highest in the country. When not arbitrarily overriding the rights of shareholders to protect underperforming Quebec companies, the government has flip-flopped on its attitude toward resource development. In short, it’s an economic environment layered with uncertainty, instability and state interference.

For the longest time, the solution from the Quebec government to its stagnant business environment was more Quebec government, in the form of state-sponsored funds doling out cheques to those it deems to be worthy entrepreneurs. Just this past March, the Caisse de dépôt et placement du Québec pension fund, that bastion of economic nationalism, joined with Desjardins Group to create a fund to pump $230 million into small and medium-sized enterprises, having already distributed $190 million to 186 other companies through an earlier fund. And yet the level of business creation is stuck in neutral.

This is what Couillard faces. He’s said all the right things about tackling Quebec’s fiscal crisis: “The time for cosmetic changes is gone,” he said in his throne speech in May. “We must act firmly and decisively. And we will.” His far bigger challenge remains to make Quebec a place where entrepreneurs would want to set up shop. The best way he can do that is to get his government out of the way.




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Why Quebec is closed for business

    • ” Statistics Canada released a largely overlooked research paper that examined the rates at which new businesses have been joining and leaving the marketplace in each province…”

      It’s not just Quebec.
      When the last manufacturing sector leaves Canada, so to will our pensions, health-care, and education.
      …And then the doctors, engineers, technologists, …, will leave.
      Welcome to Harp’s future, when Canada finally becomes nothing but fetchers’ of trees, crude, and water, with only Harps rich 1%’ers left.

      • Oh yes it is all Harper’s fault. Ignore what the various provincial governments have been doing (which has a bigger effect on the decisions of businesses).

        For the most part, the federal government has little day to day influence on Canadians – it is provincial governments that are the bigger factor in our day to day lives. As this article points out – duh.

        But instead you use it as a rant about Harper. Get a new line

  1. Yep, I don’t even buy REITs if they hold any significant property in Quebec or east. Even reducing holdings of Ontario companies as I just sold one the other day.

    Why is simple, they lose investors money and the system is run by economic idiots. Lets talk USD or Yuan, as they are WORLD currencies and prices are based on these currencies and nit small Canada.

    Say I invested $100,000 in Ontario/Quebec/PEI/NS/NL a year ago. Say I even make a 5% profit which is very rare. So I have $105,000 less $2000 in taxes for a $103,000 in money. But wait, CAD money depreciated so in USD I have $95,800, a whooping $4,200 (4.2%) loss in purchasing power.

    Hits people in food, utility, gasoline and other costs too, so they have less to spend on each others jobs.

    And what drives it? Simple, govmint debt. No legitimate lenders are lending Canada the hundreds of billions of govmint debt, BoC creates the electronic counterfeit out of thin air to devalue money and in the ruse of solvency, directly or indirectly buy the govmint debt.

    Fact is we have uncommon good bloated, wasteful, bailouts, other peoples money for nothing of value and debt to the unborn for a madness of financially irresponsible governments.

    Hey, our young can’t afford family homes or kids buy single bed condos, as we are all too busy supporting govmint kids and well conditioned not to question our governments on the wastes.

    Its going to be at least as bad as the 70s, 1969 home went from $14,800 to 1979 price of $97,000…. hyper-stagflation and govmint will lie about real inflation. But fact is Canada is going to be devalued and why I now invest all new moneys, and some old ones too into US and International. Getting far better returns too.

    Until economic sanity and fairness return to Ontario east and BC, its just going to get worse. In depreciating CAD, my foreign ROI in the last 8 months in terms of CAD is 7.5% x (14.4% (gain) + 4.34% (div) + 7.5% (currency value) for 28.2% gain before taxes.

    In fact, given the poor performances of many oil/resource stocks, I would say even the west is failing, and why the last 9 stock purchases were all outside of Canada.

    Hey, jobs go south as US and Mexico don’t have the hidden and real tax bloats to support, and as a result can work for less and have more. Investments go south for the same reason, else union and governemtn greed for a return above inflation plus taxes so you don’t lose vale.

    Now if my wife let us move out of Canada, I could save a whole lot on taxes too….as I hate supporting so many freeloaders in Canada that punish productive non-govmint working people at the till and the pay tax greeds.

  2. Lets look at REAL economics for a bit.

    Canadians have to earn $1,400,000 to pay $700,000 in taxes, $300,000 in fair interest, to buy a $400,000 home that is $200,000 in labour, fees, tariffs and other taxes to build the tax-debt out $200,000 home.

    Mexican earns $200,000 to pay $40,000 in taxes, $40,000 in interest to buy a $120,000 home. (Also pays a whole lost less in city/utility/education taxes too).

    American earns $360,000 to pay $60,000 in taxes, $50,000 in interest (tax adjusted) to buy a $250,000 home. (Also pays a whole lost less in city/utility/education taxes too).

    My buddy in USA had his roof done, $6800, me, its costing me $12,800 for near identical home. As in Canada were are taxed like slaves. But hey, its $6000 I don’t spend on someone else’s job. Hey, raise my dentists taxes, I get the bill and have less to spend on other peoples jobs. With devalued money, I have less to spend on other peoples jobs to make the goods and services.

    Reality is, we require uncommunicative inflated wage demands to live in Canada, so Energizer looks as Montreal as a high cost, money losing venture…and is going to close it. Same reasons Caterpiller, Kelloggs, Heinz, Bombardier and a lot of others are laying off or closing permanently.

    Until enough people realize the economics insanity of socialist-statism corruption in Canada and how much it really costs them for this waste, Canada is on a downhill ride. BTW, I am a 1 or 2%er…..retired early.

    Want jobs? Get some economic sanity. Look for win-win-win and not win-lose-lose….no one wants to play with losers to lose.

  3. You are right, as a 2%er Canadian investor, if the core business is in any of BC, Manitoba, Ontario, Quebec, PEI, NB, NL I simply do NOT invest. Reasons are simple as very few make value for investors. Sure, they return 2% dividends for some, but money was devalued 7.5% in the same period, a 6% or more value loss after taxes.

    If you as a investor can’t get a return rate of (inflation+currency devaluation+taxes) then you are negative value investing. If I invested $1000 last year, but takes $1075 to buy the same stuff this year, a $1020 2% return doesn’t cut it folks as I lose 5.5% purchasing value on the deal.

    Its why I know StatsCan LIES about real inflation. You can see the costs rise in housing materials, appliances, autos, iron, food and more… companeis get hit with this too evaporating their already pathetic returns to shareholders and thats before union and tax greed costs. Its why Energizer, Heinz, Caterpillar, Bombardier and a lot of others are laying off or closing up.

    You bet its not just Quebec, I do not buy ANY debt instruments below 10% (which today is zero), I do not invest unless I can get total returns of 10% or more as that is the value break even amount.

    Rich get richer as they do the math and account for inflation and currency value. Canada is a depreciating tax inflated economy of debt fraud.

    I can handle CRA annual audits, they see 3 times the earnings and love to snoop for investment tips….from this offshore “mass painted” cheater that doesn’t cheat. 3 audits in 10 years, I won all 3 disputes. Most offshore are honest.

    I am even declining western Canada investments as weakness is like cancer, it eventually takes out the the whole host. Canada can’t afford the govmint bloat, waste and other peoples money for nothing greed any longer, its downhill here in. With gains below inflation, Canada is a LOSER until it gets more economic fairness.

    • I hear you, I have worked overseas for over 5 years, and the labour/materials to build a small Villa/Home, lets say, in Antigua, for example, is about 3 times less than it is here !, and I’m talking Quality built. It’s amazing how much our (Canadian) gov’t screws everybody over here.

      With the sheer amount of the Billions upon Billions of annual tax dollars that the Canadian (Fereal/Provincial) Govt’s steal from us, there is no reason at all why all Canadians couldn’t enjoy better health-care for their families, free Education, 100% dental-care,…

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