Quebec Should Eliminate Subsidies to Reduce Taxes

Viewpoint showing that by doing away with subsidies to private companies, the Quebec government would free up sufficient funds to substantially reduce the corporate tax rate

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This Viewpoint was prepared by Emmanuelle B. Faubert, Economist at the MEI. The MEI’s Taxation Series aims to shine a light on the fiscal policies of governments and to study their effect on economic growth and the standard of living of citizens.

Among Canadian provinces, Quebec is the king of subsidies.(1) The government uses them extensively to attract businesses, because without these pledges of financial assistance, the province struggles to attract investors. Meanwhile, Quebec also has the highest tax burden of any state or province in North America.(2) This raises an important question: why continue to tax companies so heavily only to then redistribute part of this revenue in the form of targeted subsidies to the very same companies?

With the political and commercial uncertainty spilling over the southern border, it is all the more important to ensure that Quebec remain attractive without having to resort to subsidies. Indeed, eliminating these transfers, while also reducing the tax burden on companies, would allow Quebec to position itself as the jurisdiction with the lowest corporate tax rate in North America.

Robbing Peter to Pay Paul

The Quebec government collects billions of dollars in corporate taxes every year from companies operating in the province. The subsidies paid to private companies are equivalent to a significant proportion of these revenues. The ratio of the amounts paid and collected is a useful indicator for assessing the extent of this redistribution.

For example, in 2023-2024, the provincial government collected $11.4 billion in revenue from corporate taxes, while it paid out $7.8 billion in subsidies to businesses.(3) In other words, the equivalent of more than 70% of corporate tax revenue for that year was redistributed to favoured private companies. Between 2018 and 2023, the average ratio between Quebec’s corporate subsidies and corporate tax revenues was 59.8%(4) (see Figure 1).

This type of government interventionism discourages the most profitable and competitive companies from setting up in the province, as they are penalized by high corporate tax rates while massive subsidies benefit those companies that need financial assistance (or that meet the criteria for government subsidy programs). This model instead attracts businesses that would struggle to be profitable without the help of these subsidies, creating a vicious circle in which the economy depends on businesses that are themselves dependent on subsidies to stay afloat.

We need only look at recent developments regarding projects in the battery industry and the electrification of transportation.

• In recent years, the Quebec government—along with the federal government and other provincial governments such as Ontario’s(5)—has sought to make the province a global supplier of batteries.(6) In September 2023, it was announced that Northvolt, a Swedish company specializing in the production of batteries for electric vehicles, had received a grant to open a subsidiary in Quebec.(7) To date, more than $710 million in public funding has been injected.(8) In 2025, however, Northvolt’s parent company filed for bankruptcy protection at home, and the economic benefits of this agreement for the Quebec economy remain highly uncertain.(9)
• Since 2008, the Lion Electric Company, a Saint-Jérôme-based manufacturer of electric school and city buses, as well as electric trucks, has received more than $200 million in public funding in the form of subsidies and loans. In December of 2024, this company also filed for protection from its creditors.(10)
• Present estimates show Quebec will have lost a minimum of $515 million in 2024 alone as a result of investments that did not bear fruit, the corporate beneficiaries now being insolvent.(11)

History and economic analysis show that the government is poorly placed to determine which projects will be of real benefit to the Quebec economy, especially when it comes to subsidizing a specific sector or a few hand-picked companies.

Eliminating Subsidies to Reduce Corporate Taxes

Besides government largesse, there exist other means of encouraging companies to locate in the province. By eliminating subsidies to private companies, the government would free up sufficient funds to reduce the corporate tax rate.

More specifically, based on the average of total subsidies granted between 2018 and 2023, the government could lower the corporate tax rate by 6.75 percentage points without affecting its revenues at all. The provincial tax rate would thus fall from 11.5% to 4.75%.(12)

This reduction would give Quebec the lowest corporate tax rate of any jurisdiction in North America.(13) Taking into account the federal tax rate of 15%, companies established in Quebec would be taxed at a combined rate of 19.75%, lower than the lowest rate of 21% in force in the United States.

This kind of tax reform would be particularly appropriate given that Quebec is looking to provide an attractive environment for companies wishing to establish and develop a presence here.

Conclusion

Eliminating subsidies to private companies in favour of lower corporate taxes would attract more profitable companies to Quebec by changing the incentives that currently encourage firms to solicit government handouts in order to set up shop here. Tax reform of this kind would allow Quebec to throw off the dubious title of subsidy king and emerge instead as the jurisdiction offering businesses the most competitive tax environment in North America.