On Tuesday, March 28, the Quebec government will table its next budget. For the 2016 fiscal year, it has already accumulated a surplus of $2.3 billion. One of the Liberal Party’s election promises was to allocate half of surpluses to tax reductions. This would be a very good idea, given that taxes and contributions to the public treasury have been on the rise since the beginning of the decade.
The 7.5 per cent Quebec Sales Tax, which hadn’t budged since the turn of the millennium, grew to 8.5 per cent, and then 9.5 per cent, before being harmonized at a little less than 10 per cent in 2013.
Since 2014, the carbon market has raised the price of gasoline by around $0.04 per litre, an amount that is expected to increase further.
The provincial tax on cigarettes went up by $9.20 per carton in just four years, and now totals $29.80.
The tax on alcoholic beverages fell for beer and wine consumed in a bar or restaurant, but this reduction was counterbalanced by a tax increase on alcohol sold at the SAQ, in supermarkets and in convenience stores ($0.23 a litre for beer and $0.51 a litre for wine). The choice was not a random one, as the majority of alcohol is sold in retail stores.
In 2013, the tax rate on incomes over $100,000 went up by 1.75 percentage points, to reach 25.75 per cent (and, after adjustments for inflation, by 2016 applied to incomes over $103,150).
Since 2012, Quebec Pension Plan contributions have increased by 0.15 percentage points per year (0.90 points in all), to reach the equivalent of 10.80 per cent of an employee’s gross salary.
The “temporary increase” in the compensatory tax on financial institutions, announced in 2010 and supposed to end in 2014, has been increased, prolonged, and transformed on a number of occasions, and is still in effect at the time of writing. This tax is mostly paid by the employees and clients of these companies, which means individual taxpayers.
The list is shorter on the tax-reductions side of the ledger. The health contribution was indeed abolished, but it was also created during this same period. It therefore counts as a temporary increase. The only real reduction comes from the abolition of the tax on capital in 2011, of which only crumbs remained.
The end result is that Quebec continues to be the Canadian province where people are the most heavily taxed. Comparing just personal income tax revenue, Quebec would come second among the most-taxed OECD countries, behind only Denmark. When it comes to corporate income taxes paid, only four OECD countries have a higher rate of tax pressure than Quebec, namely Sweden, Luxembourg, Australia, and Austria.
Each time the fiscal footprint increases, there are consequences for taxpayers. Small amounts and a few percentage points, on many transactions or on taxable income, end up representing an appreciable sum that is piled on top of the already heavy burden that Quebec taxpayers are saddled with. High sales taxes also make it more difficult for retail businesses to be competitive, compared to stores located across the border.
In general, a heavy tax burden can push high-income individuals, who are often very mobile, to move to another province or country. This deprives Quebec not only of tax revenue, but also of investment, job creation and economic growth.
Considering the numerous taxes and contributions that have gone up in recent years, the short list of reductions and the substantial surpluses that are starting to be generated, the government has several good reasons to respect its electoral commitment to reduce taxes. In doing so, it would reduce the burden on taxpayers, all while favouring a climate conducive to economic growth.
Germain Belzile et Mathieu Bédard sont respectivement chercheur associé senior et économiste à l'IEDM. Ils signent ce texte à titre personnel.