Fixing our Economy
:: A blue print for Quebec finances
While reading The hidden dangers of the informal economy on The McKinsey Quarterly's website, it is pretty clear that there is good advice for our finance minister.
The current sales taxes levels are so high that an ever increasing portion of the economy, especially in areas of construction and real estate, are slipping towards an informal or gray economy.
Specifically, the current expansion riding on the heels of a low-rate refinancing and 1st condo purchase craze has created an unsustainable demand in construction and renovation skills and commodities.
Many contractors have increased substantially their demands in wages and require more stringent contract terms. Demand has heated up so much, that most contractors are now even requiring payments in cash. In Quebec alone, where there is a 15.025% sales tax that they can pocket or avoid, such cash transactions also contribute to reducing the contractor's 50.02% corporate tax rate on Net Income.
And this situation, is really not limited to contractors. Materials suppliers are asking for cash payments and even brokers and agents are making implicit requests to bypass paying fees to their agencies and asking the most eager sellers to provide fat enveloppes in order to maximise sale prices and their attention.
In turn, commercial sellers have realized that they can avoid paying taxes on capital gains if they can receive important cash payments.
Purchasers are seemingly eager enough to buy the most valuable properties in the hottest areas and slipping an enveloppe with a brown wad is no longer a tabboo.
One question remains: with an apparently high level of cash transactions being treated in the Economy, how much tax revenue are we losing to the informal economy.
As supply-siders may ponder, could this loss of revenue be avoided by reducing the tax rates and by encouraging people to pay their fair share by increasing monitoring and policing of our tax system?
Personnally, I think so and this fine document on McKinsey's website is an informative read to start asking our politicians the right questions come next provincial and federal elections.
:: A blue print for Quebec finances
While reading The hidden dangers of the informal economy on The McKinsey Quarterly's website, it is pretty clear that there is good advice for our finance minister.
The current sales taxes levels are so high that an ever increasing portion of the economy, especially in areas of construction and real estate, are slipping towards an informal or gray economy.
Specifically, the current expansion riding on the heels of a low-rate refinancing and 1st condo purchase craze has created an unsustainable demand in construction and renovation skills and commodities.
Many contractors have increased substantially their demands in wages and require more stringent contract terms. Demand has heated up so much, that most contractors are now even requiring payments in cash. In Quebec alone, where there is a 15.025% sales tax that they can pocket or avoid, such cash transactions also contribute to reducing the contractor's 50.02% corporate tax rate on Net Income.
And this situation, is really not limited to contractors. Materials suppliers are asking for cash payments and even brokers and agents are making implicit requests to bypass paying fees to their agencies and asking the most eager sellers to provide fat enveloppes in order to maximise sale prices and their attention.
In turn, commercial sellers have realized that they can avoid paying taxes on capital gains if they can receive important cash payments.
Purchasers are seemingly eager enough to buy the most valuable properties in the hottest areas and slipping an enveloppe with a brown wad is no longer a tabboo.
One question remains: with an apparently high level of cash transactions being treated in the Economy, how much tax revenue are we losing to the informal economy.
As supply-siders may ponder, could this loss of revenue be avoided by reducing the tax rates and by encouraging people to pay their fair share by increasing monitoring and policing of our tax system?
Personnally, I think so and this fine document on McKinsey's website is an informative read to start asking our politicians the right questions come next provincial and federal elections.
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