Thursday, April 30, 2009

Gaffe Costs Quebec Gov $400 Million a Year

With all the publicity concerning the mammoth loss of almost 40 billion dollars by Quebec's Caise de Depot, it isn't surprising that another fiscal blunder has largely gone unnoticed. It seems that a simple accounting mistake has cost the Quebec government a small fortune.

Successfully operating a province in Canada is a bit like paying your taxes. You've got to arrange your affairs to take maximum advantages of the governing tax policies.
It seems that the Quebec government committed a monumental mistake, one that continues to cost the province hundreds of millions of dollars each year, in equalization payments.

A simple accounting change has triggered the 'Law of Unintended Consequences" to the detriment of Quebec taxpayers.
It's quite simple. Last year the government, in an effort to balance it's budget, asked Hydro Quebec to remit a higher portion of it's profits directly to government. Usually, Hydro keeps a portion of it's 3.5 billion annual profit to finance new projects.
The utility was told to remit more money to the government and told to borrow, if needed, funds for expansion. It was technically, a neutral transaction, as the government is the sole shareholder of Hydro-Quebec, it just meant that Hydro would become a borrower in place of the Quebec government.

What the Quebec bureaucrats didn't realize, is that due to changes in the formula used by Ottawa to calculate equalization payments (introduced by Ottawa in 2007) , the change had the effect of making Quebec seem richer and thus triggered a reduction in equalization payments.(Equalization payments are subsidy's that the Federal government pays to poorer provinces,)

According to Gérard Bélanger et Jean-Thomas Bernard, two economic professors at the Université Laval, the measure triggered a loss of over 400 million dollars in compensation, PER YEAR!

To date, the Quebec government has no plans to change this accounting practice. ....grrrr..
Reblog this post [with Zemanta]

No comments:

Post a Comment