We work for all kinds of reasons, but the main motivation remains the paycheque. Quebec therefore uses two financial incentives to convince you to work more hours, postpone your retirement or even leave it: tax cuts and major changes to the Quebec Pension Plan (QPP).
The tax cuts promised on the election signs of the Coalition avenir Québec (CAQ), in the fall of 2022, will soon have a concrete impact on the pay of 4.6 million Quebecers. From July, the first two tax brackets will be reduced by 1 point each.
In the midst of an inflationary period, when purchasing power is shrinking, no one will complain about these tax cuts. But next summer, will the tax relief only be noticed by workers?
Concretely, a person whose taxable income is $50,000 will find themselves with $328 more in their pockets after one year. Each of his pays will be increased by approximately $13. Quebecers who earn $70,000 will be entitled to an additional $20 per pay ($528 per year), while from an income of $100,000, the gain rises to $31 per pay ($814 per year).
In the family budget, on a daily basis, to pay the mortgage or the groceries, it won’t change much. But that’s not unique to this tax cut. It is always like this: individually, the amounts are minimal, collectively, they are considerable, this time reaching 1.7 billion. Minister Eric Girard nevertheless affirms that his measure will improve the ability of individuals “to consume and save”. And, he calculates, the tax cut will convince Quebecers to work more, which is necessary in the midst of a labor shortage.
“We assume that the labor supply will be increased by 16,000 people,” the Minister of Finance told me. In short, it is as if 16,000 new full-time workers were added to the province because, suddenly, every hour pays more.
Some people will be more inclined to accept the overtime offered by the boss, others might want to work an extra day a week, it is assumed.
Many reasons that have nothing to do with money, however, can lead workers to limit the number of hours they are willing to devote to the boss. Mental or physical health, young children, age, a sick parent, family wealth… Will the tax reduction of 1 point per level make you review your priorities? That remains to be seen.
Optional QPP contributions after age 65
The changes to the QPP are likely to have a greater impact on the behavior of the workforce.
To convince people aged 65 and over to stay in the labor market, the contribution to the QPP will become optional for those who already receive a pension. From 1er next January, all you have to do is notify your employer by means of a form for the withdrawals to cease the following month. The company will also stop contributing, if necessary.
In 2023, the maximum contribution reaches $4,038 for employees and $8,076 for self-employed workers who must also pay the equivalent of the employer’s share.
“It’s not nothing, according to Minister Girard. In terms of cash, it can be very interesting. An employee whose work income is $15,000 will increase his disposable income by $606 by ceasing to contribute to the QPP.
Its income retention rate will then be close to 70%. Contrary to what some people believe, it is not true that seniors see the majority of their income go away in taxes.
Of course, contributions made after age 65 do not go up in smoke. In some cases, such as that of immigrants who arrived in Québec in the middle of their career, they can increase the pension (by 0.66% the following year). But it’s not always the case. Sometimes, the eldest who contributes hurts himself financially! This occurs when low income reduces the average earnings used to calculate the pension.
This absurdity will be corrected. That’s excellent news.
The method of calculating the pension will indeed be modified on 1er January 2024 so that years of low earnings from age 65 can no longer have a negative impact on the pension. This measure will financially protect 12,000 workers.
Another change announced: the maximum age for claiming a QPP pension is increased from 70 to 72 years old. As we know, the longer we wait, the higher the amount obtained. These two additional years lead to a lifetime increase in the annual pension of $2,634.
We can only hope that all these new features will be properly explained by Retraite Québec to the people concerned so that they can make an informed decision based on their personal situation. Minister Girard also calls on officials to better communicate the advantages of postponing the payment of the pension. This will, he had mentioned verbally during the public consultations on the QPP, in February. This time it is written in black and white in the budget. It’s a good idea, because the letter “Cap on retirement”, which you receive at age 59, is difficult to understand. And its convoluted message can have the effect of encouraging the demand for pensions from the age of 60, which is rarely advantageous.
The primary mission of the QPP is to provide seniors with a decent retirement income. Minister Girard is also using it as a tool for managing the labor shortage. If it works, why not?
But you, does Quebec make you want to work more?