The report of the Auditor General of Quebec, published last week, reveals that due to inflation, the forecast deficit of $6.5 billion for this year will instead be a surplus of $1.7 billion.
Posted at 11:00 a.m.
This news is not surprising in the inflationary context that we live. The rise in the price of goods and services inflates GST and QST revenues, from which Québec and Ottawa benefit. Since wages are adjusted (often partially) to follow the rise in the consumer price index, income from personal and corporate taxes also increases. The governments of Canada and Quebec are very happy about it.
The reality of municipalities is the opposite. They do not collect QST revenue, with the exception of the QST growth point ripped off during the last fiscal pact 1nor do they collect personal or corporate income tax.
In fact, they are largely dependent on property tax, which represents 55% to 70% of their income. 2
Even if the value of real estate has exploded in recent years, municipalities only benefit very partially from this increase. If the property tax is a tax on wealth, it is collected on the after-tax income of the owners, an income now eaten away by the rising cost of living.
In summary, inflation fills the coffers of Quebec and Ottawa without the latter having to lift a finger. The cities, which are nevertheless local governments, are forced to consider increases in property taxes visible to citizens already strangled by inflation or a marked reduction in essential and local services. While the Canadian and Quebec governments can use deficits to finance their programs, provincial legislation deprives cities of this possibility and forces the presentation of balanced budgets.
Let’s be honest: between two orders of government, Quebec and the cities, there is a massive and structural fiscal imbalance that can no longer be ignored.
Over the years, Quebec has imposed increasingly high standards to be respected in terms of the environment, health and safety, heritage protection, civil protection and other municipal responsibilities. These stricter standards result in cost increases for cities.
Moreover, the compensations in lieu of taxes for schools, hospitals and other government buildings only correspond to 71.5% to 84.5% of the property tax. This means that municipalities subsidize the services they provide to government buildings.
In short, what Quebec gives with one hand in the recent tax pacts, it often takes back with the other by discharging new responsibilities in the courts of the cities.
I will be present at the Union of Quebec Municipalities Electoral Summit, on September 16 in Montreal, where elected municipal officials will hear the leaders of political parties position themselves on various issues, including finance and taxation.
On the eve of this summit, I allow myself to offer some advice to the leaders who will be there: please avoid the temptation to take advantage of this apparent abundance to proceed to one-upmanship in election expenses or tax cuts while municipalities will be faced with heartbreaking choices.
After all, we serve the same population, the same citizens, the same taxpayers.
There is no doubt that the gap between the fiscal capacity of the Québec government and the municipal governments does indeed constitute a structural fiscal imbalance. Resolving this imbalance should be a priority for the next Quebec government.
1. https://www.mamh.gouv.qc.ca/fileadmin/publications/organisation_municipale/accord_partenariat/Partenariat2020-2024_Entente.pdf
2. https://cdn.iris-recherche.qc.ca/uploads/publication/file/Note-Fiscalite-municipale-WEB-02.pdf