On the sidelines of the budget tabled last week, Prime Minister François Legault was asked if he still intended to lower taxes during a third CAQ mandate if he is re-elected in 2026.
Yes, he replied. “Because taxes in Quebec are within the ceiling and [que] it harms the economy,” he said at a press briefing.
Firstly, it depends on what ceiling we are talking about.
It’s true, Quebec has the highest tax burden among the 10 Canadian provinces. But internationally, Quebec’s tax burden is not “in the ceiling”, it is rather at 11e rank out of 32 developed OECD states (including Quebec), according to the ranking of the Chair in Taxation and Public Finance at the University of Sherbrooke.
But it is the second part of Mr. Legault’s statement, about taxes that “harm the economy”, which is the most interesting.
François Legault is not the first politician to want to lower taxes because he believes that a high tax burden harms the economy.
There is a problem with this statement: it is false.
Contrary to what is often conveyed by those who advocate tax cuts, a lower tax burden does not necessarily mean greater economic growth.
On the contrary, countries with a higher tax burden are generally wealthier and have experienced better economic growth since 2000.
“The proof of this theory [baisse d’impôt = croissance économique] is extremely weak. What drives growth is investment. Taxation is not a determining factor in investments as long as the tax rates are reasonable and not repressive,” the renowned economist Tim Besley, professor at the London School of Economics, explained to me in an interview a year ago in as part of a report on taxes and happiness published in The Press1.
Residents of countries with a higher tax burden are generally happier, among other things because they have a better social safety net. But that’s not all: on average, they are also richer and live in countries with greater economic growth, I noted by analyzing, for the purposes of the same report, the economic data of 25 countries separated into three groups according to their tax burden (heavy, medium and light).
If you have a higher tax burden, you can finance more public investments that are important for economic growth, such as the education system, infrastructure and the justice system.
Tim Besley, professor at the London School of Economics
Of course, there are countries at all tax burden levels that are wealthy with thriving economies. Out of a group of 24 similar countries, Denmark (highest tax burden out of 24 countries), Netherlands (9e tax burden (near the middle) and the United States (lowest tax burden) are all among the top 5 of the richest countries.
But on average, richer countries have a heavier tax burden.
In a study published in 2016, economists William Gale (Brookings Institution) and Andrew Samwick (Darmouth College) also questioned whether tax cuts promote economic growth. Their conclusion: “the net impact [des baisses d’impôt] on economic growth is uncertain, and many estimate the impact to be either small or negative,” they write2. These two economists each acted as economic advisor to a Republican president, George HW Bush and his son, George W. Bush.
A politician wanting to lower taxes will also often say that tax cuts pay for themselves thanks to the economic growth they generate.
That too is false.
Four economists have just published detailed research on the corporate tax cuts granted by Donald Trump in the United States in 2017. Republicans claimed that these tax cuts would pay for themselves through economic growth. This is not what happened: the government waived 41% of the tax contributions of companies targeted by the tax cuts, and the economic growth generated by the tax cuts added 2% of tax contributions . Ultimately, the government gave up 39% of the tax base of the targeted companies3 4.
In conclusion, the tax burden appears to have only a modest influence on economic growth. And it is generally the states with a high tax burden that are wealthier and enjoy better economic growth.
Remember this the next time someone tells you that you need to lower taxes because it will help the economy.
Lowering taxes is not an economic development strategy. It is a social choice.
If we reduce taxes, we will have a smaller state and social programs.
Reducing taxes while maintaining public services is impossible in the long term, unless the deficit and debt are increased.
The Legault government is in the process of demonstrating this.
1. Read the file “Taxes that make you happy”, by Vincent Brousseau-Pouliot
2. Consult the study by economists William Gale and Andrew Samwick (in English)
3. Consult the study by four American economists (in English)
4. Read an article from New York Times (in English; subscription required)
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