The general elections are fast approaching in Quebec, a generally fertile period where political parties present their vision, unveil their promises and woo citizens to convince them to vote for them.
Posted yesterday at 11:00 a.m.
Note that it is quite legitimate for a political party to make commitments. Depending on their political leanings, some may, for example, prefer to reduce taxes, others to increase them. This is not a battle between good and evil. However, it is clear that there is nothing magic: wanting to reduce taxes means less revenue to fund public services. Conversely, collecting more taxes allows a more interventionist state. When it comes time to go to the polls, citizens decide according to their preferences.
In the current context where we hear a lot about the rising cost of living, we already know that the parties will promise to put money back in the pockets of households.
The means
Before even imagining promises, the first thing political parties need to do is identify whether they have the necessary leeway. They must therefore ensure that they know the budgetary situation of the Quebec they aspire to govern.
Good news, the time is over when, the day after the elections, a new government reneged on certain promises on the pretext that the budgetary situation bequeathed by the previous government was different from what it had been led to believe.
Since 2018, the Ministry of Finance has produced, before the call of each general election, a pre-election report on the state of public finances, and this report is submitted to the Auditor General so that he can rule on the plausibility of the forecasts and assumptions used. . This report, the aim of which is to give political parties a common understanding of the budgetary situation, will be published on 15th August next. It is on this basis that they must define their commitments.
That said, if in the summer of 2022 the deficits appear smaller than anticipated in the aftermath of the COVID-19 crisis, keep in mind that only the upcoming pre-election report will tell us whether the budget balance should remain in the deficit zone for the next four years. If that were to be the case, compliance with a financial framework providing for a return to balanced budgets by 2027-2028 should prevail over commitments to tax cuts or improvements to public services, unless a solution is found. how to finance them.
Another consideration is not only to take into account the short term, but also to assess medium and long term issues, such as the demographic transition.
The good moment
In the current context where the Bank of Canada has just raised its key rate for a 4e time in a row to fight inflation, there seems to be a contradiction when political parties promise to put billions of dollars back into the pockets of households. This influx of money will necessarily have the effect of stimulating consumption and the economy at a time when the central bank is seeking to do the opposite.
Even those a priori in favor of tax cuts will probably come to the conclusion that the current moment does not appear to be the best to proceed with an injection of sums into the economy.
If the need to do something to combat the effects of inflation on households becomes unavoidable, it would be necessary to limit ourselves to actions targeted towards the poorest. Then, with regard to a will that would remain to reduce taxes in a more general way, it would be preferable to delay its implementation so that it takes effect at the dawn of a possible economic slowdown.
The way
The Chair in Taxation and Public Finance has developed a Tax simulatorwhose main objective is to allow users to calculate the effect of changes in the main tax parameters (scale, rates, credits, etc.) on both tax revenue in 2022 and on household disposable income.
It is therefore possible to test various ways of putting money back into the pockets of households. Regardless of the answers to the first two questions raised, if political parties decide to return money to households, it must be remembered that not all ideas are created equal from a fiscal policy point of view.
Let’s start with an idea to reject: reducing the gas tax is not the right way to get money back to households, it sends the wrong signal by going against the objectives of fighting climate change. climatic. Added to this is the risk that this reduction will not be fully passed on to consumers in the medium term, not to mention that this source of revenue is entirely dedicated to financing our ground transportation network.
As for the QST, we must resist the temptation to reduce its scope and reduce its rate even further.
This source of funding that is less harmful to economic growth is fundamental to maintaining public services; it should not be reduced.
If it is necessary to reduce a tax, it is the income tax that we must privilege. It is not only the most used tax in Quebec, much more than elsewhere, but also the most harmful tax to economic growth.
To conclude, if political parties want to put money back in the pockets of households at all costs, short-term priority should be given to targeted actions. If, despite everything, an irrepressible desire to reduce the tax burden remains, we must favor income tax, that the reduction be made at the right time and only if we have the means!