It’s Christmas before time for Quebec taxpayers. Christmas on credit too, because the government offers gifts, even if it is in the red.
After the $400 to $600 checks that are currently raining down in mailboxes, there will soon be a substantial improvement in assistance for seniors. Then a tax cut that we would benefit from shifting or remodeling.
The economic update unveiled on Thursday clearly shows that the tide is turning. The time for tax bliss is over, as when the Coalition avenir Québec (CAQ) came to power in 2018.
At the time, Finance Minister Eric Girard was the first to recognize that he inherited healthy public finances. Then, the performance of the economy had enabled him to deliver his election promises more quickly than expected, such as reducing the school tax.
So much the better ! Quebecers, taxed like nowhere else in North America, weren’t going to complain.
Then the pandemic hit hard. But the recovery has been much more vigorous than expected, due to inflation which fills the coffers of the State with taxes and levies.
The CAQ therefore finds itself today with $5 billion more in revenue than expected, a leeway it uses entirely to help taxpayers cope with inflation.
For the poorest who struggle to buy groceries, the checks are perfectly justified. But the government should have kept a little embarrassment before sending purely electoral checks to households with substantial incomes.
For its part, the increase in the amount of assistance for seniors, which goes from $411 to $2,000 per year, will benefit the less well off more, which is commendable. On the other hand, it is misleading to present this relief as an anti-inflation measure, since it is a recurring aid that will cost $1.6 billion per year in the long term.
At least the government took the opportunity to withdraw the tax credit for physical activity for seniors, the perfect example of an overly pointed credit that only complicates the filing of personal income tax.
Good riddance !
But back to the economic update…
With recession looming on the horizon, Minister Girard is now forced to drastically cut his 2023 growth forecast from 2% in the last budget to just 0.7%… and that remains more optimistic than economists from the private sector, who count on barely 0.3%.
In short, the CAQ will soon have the wind in the front, she who was so optimistic during the campaign. The CAQ had also taken the liberty of using long-term economic growth forecasts that were higher than those that had just been presented in the pre-election report and which should normally have served as its basis.
This little game allowed him to forecast 3.3 billion in additional revenue, over four years. And to offer even more gifts. But do not look for the trace of this economic windfall in the update. She disappeared ! The Minister of Finance has taken off his election glasses.
However, if the revenues are not there, how will we finance the tax cuts promised in the campaign?
Remember that the CAQ wants to reduce the rate of the first two tax brackets by one percentage point, starting in 2023. A gift of 7.4 billion, over four years.
The idea is not to encourage the CAQ to renege on its promise. But as the context has changed, the government should play it safe by postponing the entry into force or by applying the reduction more gradually.
It should also take the opportunity to redefine its tax relief, targeting more workers earning between $20,000 and $80,000, the income bracket where Quebecers are taxed much more than their Ontario neighbors, as the Research Chair in taxation and public finance (1).
Another recent study also shows that it is by lowering income tax between $30,000 and $55,000 that we would obtain the most optimal result (2).
One thing is certain, the government has some homework to do before granting general tax cuts. Quebec remains the third most indebted province in the country. The government is still in the red and services are cracking everywhere. Before playing Santa Claus, it would be wise to present a serious and binding plan to return to balanced budgets.