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We talk a lot about tax cuts with percentage points. In figures, what is it, exactly? What does that represent, say on an income of $30,000, $40,000 or $50,000?
Gilles Frigon
Finance Minister Eric Girard will unveil his budget on March 21. Tax cuts are likely to be on the menu, even if Quebec’s finances remain in the red.
The Coalition avenir Québec (CAQ) seems determined to fulfill its election promise to reduce the rate of the first two tax brackets by one percentage point, starting in 2023.
This tax relief would deprive the state coffers of about $1.8 billion a year, or about 1% of the province’s consolidated revenues. A lot of money, then.
But what does this actually represent in the pockets of taxpayers?
For anyone earning less than $17,183 a year, the answer is simple: nothing! Up to this level of income, there is no tax payable to the provincial government. No tax, no savings.
We should mention as an aside that 2.4 million Quebecers, or 36% of taxpayers, pay no tax, a percentage slightly lower than that of the other Canadian provinces. These are often students or stay-at-home spouses.
Now let’s look at those who pay taxes.
On the first bracket of income ranging from $17,183 to $49,275, the provincial tax rate is currently 15%. It then increases to 20% on the income bracket from $49,275 to $98,540. By lowering these rates to 14% and 19% respectively, the CAQ would offer tax savings of up to $814 per taxpayer.
To get a more precise idea of the savings, we asked Stéphane Leblanc, associate tax specialist at EY, to do a simulation for employees earning different levels of income.
For example, a lower income person earning $30,000 a year would save only $113 in taxes.
A person earning $60,000, not far from the average salary of a full-time worker in Quebec, would be entitled to savings of $410.
And it is from an annual salary of approximately $100,500 that a worker would obtain the maximum tax savings of $814.
As we can see, the savings would be directed more towards taxpayers at the top of the scale. Some will say that it’s fair game since they pay more tax.
To tell you the truth, the 20% of taxpayers who declare the highest incomes in Quebec (in 2017) pocketed half of the total income (51%) and they paid nearly three quarters of the taxes paid by all of the population (71%) to the Government of Quebec1.
Nevertheless, the CAQ could modulate its tax cut project differently, without renouncing its promise, to make the measure more optimal.
In fact, the tax reductions should mainly target taxpayers who earn between $20,000 and $80,000, because it is in this range that the tax gap with our neighbors in Ontario is most obvious, according to a recent study by the Research Chair in Taxation and Public Finance at the University of Sherbrooke2.
We will see in ten days if the CAQ prefers to grant the most generous reductions to the wealthiest or to the middle class.