There are problems that are more difficult to solve than others. There are also solutions that are more difficult to pass. Productivity in Quebec is one of those problems, and rebalancing its taxation is one of those solutions.
The Minister of Finance of Quebec, Eric Girard, was pleased on Tuesday to present the budget of a State with “healthy” financial bases able to ensure the continuation of its main missions in the long term. He also reiterated his government’s commitment to “eliminate the wealth gap with Ontario by 2036”, which is currently estimated at 13.6% and is expected to be reduced to below 10% by here 2026.
This implies, it is said, that Quebec maintains, on average, economic growth superior to its neighbor by almost one percentage point (0.8%). Fortunately, we are talking here about wealth per capita, that is to say that Quebec will not have to compensate for the adverse demographic winds that will continue to blow against its economy. Rather, he will have to find a way to put as many unused arms as possible to work and find a way to increase the value of what everyone produces.
But since its employment rate for people aged 25 to 54 is already higher (86% in January 2022) than the Canadian average (83.7%) – thanks in particular to the benefits of the public childcare services network on the participation of women to the labor market — Quebec will be able to achieve at most 20% of its catch-up by better integrating older, immigrant or marginalized workers, admits Eric Girard. Four-fifths of the way will have to be done by increasing the wealth produced by each worker, also called productivity.
But there is a catch. Closing the wealth gap with Ontario would require an average increase in productivity of 1.6 per cent per year by 2036, the ministry calculated. However, the trend is not going at all in this direction, the average since 1999 being 1% and having even decreased to 0.68% during the ten years which preceded the pandemic, recalled this summer the Chair in taxation and public finance from the University of Sherbrooke.
The scarcity of labor will eventually one day force companies to try to catch up on automation and new technologies, estimated last week a study by the Institut du Québec (IDQ). But that will, at best, bring productivity gains to 1% per year, it was said, unless drastic measures are adopted to force the pace.
Solutions
The solutions proposed by the experts generally range from the adoption of new technologies to innovation defined more broadly in order to also affect the organization of work, the development of new economic sectors with greater added value as well as the green shift. . It is also always a question of education and continuous training throughout life, as well as basic research and technological innovation. With his budget, Eric Girard has tackled several of these factors, but still too timidly, estimated the IDQ.
Another solution always proposed and, this time, almost always ignored by governments is what the Public Policy Committee of the Association of Quebec Economists calls “fiscal rebalancing”. The aim is to keep the total tax burden unchanged, but to reduce the forms of tax which discourage work, saving and investment and to compensate for these reductions by increasing other forms of tax which are less harmful to the growth.
Usually, no one sees a problem with using taxation to encourage better economic behavior, especially if it is to be done at zero cost to taxpayers. Things get trickier, however, when it is specified that it is a question in particular of reducing taxes on personal income and corporate profits and of increasing consumption taxes, such as the QST. exesperts can explain that the regressive effects of these taxes can be canceled out by transfers to lower-income households, that the reduction of inequalities is achieved much more through public services and social transfers than through taxation and that the leading countries of social -democracy have much more recourse to consumption taxes than Canada: nothing helps. The subject remains taboo.
Prime Minister Legault dangled possible tax cuts last week. But just tax cuts.