Economic update | No check, indexation of tax assistance

(Quebec) “It pains me to see the drop in support from Quebecers for me. […] I know that Quebecers are currently suffering a lot from the increase in prices. And I’m going to try to see how I can help them better. »

Prime Minister François Legault attributed his slide in public opinion last week to the economic context, a context which is not about to improve. He once again mentioned the idea of ​​giving taxpayers a breath of fresh air.

However, there will be no check or one-off financial aid in the economic update from Finance Minister Eric Girard on Tuesday.

Instead, we should expect the government to rely on indexing the tax system to demonstrate that it protects the purchasing power of taxpayers.

Clearly, the value of tax credits and other tax measures will increase to take inflation into account.

Examples ? The solidarity tax credit, intended for low-income households, will be increased in order to keep up with the increase in the cost of living. The same goes for support for the elderly, family allowance, work bonus and tax thresholds. Social assistance benefits will be improved in the same way.

Automatic indexing

This is not a surprise, nor a new gift. The law provides that tax parameters must be indexed each year. The financial impact is nevertheless significant in the current inflationary context.

In December 2022, Eric Girard announced that the indexation rate of the tax system for 2023 is set at 6.44%, which represents an increase of $2.2 billion in the value of tax credits and other measures. This was unheard of since the automatic indexing introduced in 2002.

For this year, if we take into account the Finance calculation method, we should expect the tax system to be indexed by around 5%. The measure will still be in the billions of dollars.

In interview at The Press in September, Eric Girard explained that the time for checks is over to the extent that the government has indexed its tax system for 2023 and that it had already done a lot to help Quebecers cope with the cost of living with its “shield anti-inflation” ($500 in the spring of 2022, then from $400 to $600 in the fall of the same year, a tax cut that appeared on the paycheck in July). François Legault subsequently gave the impression of contradicting him by mentioning “special aid” intended for certain taxpayers.

However, the time has come to “synchronize the government’s fiscal policy with monetary policy [de la Banque du Canada] to bring inflation back to 2% as expected,” said Eric Girard after being accused of having done the opposite and of having fueled inflation with the payment of checks. Indexing the tax system should therefore be the government’s safe haven measure to demonstrate that it cares about taxpayers’ wallets.

Black clouds

This is not trivial: Quebec is now the inflation champion in the country. The annual change in the consumer price index (CPI) stood at 4.8% in September, compared to 3.8% for Canada as a whole.

Quebec is also experiencing a more marked economic slowdown. The decline in gross domestic product (GDP) reached 1.9% in the second quarter; 0.2% in Canada.

With its preliminary report on GDP in the third quarter, Statistics Canada suggested last week that the country could have entered a technical recession, a very bad omen for Quebec.

Eric Girard said a month ago that “we must not be alarmist”. “Normally, the third quarter should be positive, and we will not have two consecutive negative quarters, which is the traditional definition of the start of a recession,” he added.

The minister must today admit that the performance of the Quebec economy is less good than expected. We should expect him to revise downward his economic growth forecast which, at 0.6%, was rather weak. Quebec has already reduced expected revenues this year by at least $1 billion.

Eric Girard had, however, provided a financial cushion to absorb the shock: the “provision for contingencies” of 1.5 billion this year will obviously be used to avoid a bigger deficit. We remain focused on a return to budget balance in 2027-2028.

The road will be difficult. In a report made public Friday, the Institut du Québec indicates that a significant financial tightening is expected after five years of high spending, in particular due to the pandemic and the anti-inflation shield.

He even uses a word hated by the CAQ: austerity.

The 2.2% annual growth in portfolio spending planned by the government between 2023 and 2028 “compares to periods of great rigor, even austerity, that the province has experienced in recent decades,” particularly under the government by Philippe Couillard, he writes. “This return to more modest spending growth is likely to be difficult, as inflation – which remains higher than forecast in the last budget – will continue to put pressure on costs. »

This “austerity” had been costly for the liberals in public opinion, which does not bode well for the Legault government.

In this context, negotiations with the 600,000 state employees promise to be even more difficult. The union strike movement begins this Monday. The gap is significant between the parties.

Food banks and other issues

Despite its financial concerns, Quebec will respond to important issues with its economic update. It will provide additional funds to food banks, which are starving. We will be close to the 18 million claimed.

The emergency fund announced for homelessness earlier this fall, 15.5 million in new money, should become recurring, therefore guaranteed for years to come.

The update should contain the financial impact of the “Declaration of Reciprocity” between the government and municipalities, the formula which replaces the fiscal pact. Some additional 500 million will be paid to help them adapt to climate change over the coming years, according to the agreement that The Press obtained. The sum will be integrated into the government’s green plan.

It was also revealed earlier this fall that the economic update will contain additional funds for the construction of social and affordable housing.

The Legault government is leveling the federal playing field and will also invest 900 million over the next few years, for total investments of 1.8 billion thanks to the recent Ottawa-Quebec agreement.

We will confirm the $265 million for 2024 intended to finance transport companies which are in deficit.

There has been a collision between the government and the municipalities of Greater Montreal, who consider this aid insufficient. In interview at The PressMayor Valérie Plante led a charge against the government, accusing it of having made “several decisions”, like this one, which “have a negative impact on the metropolitan region”.

In Quebec, we are surprised by this outing. And tables are being circulated according to which the 82 municipalities of the Metropolitan Community of Montreal (CMM) would have “unallocated operating surpluses” of 803 million according to the 2022 financial reports. That would be 76 million for Montreal.

It promises for the future…