If in 2022 the Quebec economy was running at full speed, the year 2023 will be marked by an economic slowdown, even a recession. The average private sector economic growth forecast for Quebec in 2023 was only 0.3% in the fall. Even if Québec’s public finances appear to be in good shape, it should be pointed out that it is in an uncertain economic context that the government must, in its next budget, restore the restrictive aspects of Balanced Budget Act and lay the foundations for a plan to return to balanced budgets by 2027-2028.
A year of tax cuts?
The elected government has promised personal income tax cuts. In our view, however, there are prerequisites that must be met before implementing this promise. Among these, think of the return of the application of the Balanced Budget Act and the necessary presentation of a deficit reduction plan by 2027-2028 which must accompany it; then the identification of a new indebtedness target over a 10 to 15-year horizon and the setting of the annual payments required in the Generations Fund to achieve this target. This last point is necessary, knowing that the promise of income tax reduction indicated that it would be financed by a reduction in annual payments to the Generations Fund. If the government wishes to go in this direction, it must do so only after ensuring the size of the payments required in the Generations Fund in order to reach the new debt target. If this proves to be true, it will then be possible to assess whether there is room for maneuver to proceed with a tax reduction.
By comparing the income tax schedules of Quebec and Ontario, it is possible to see that in 2022, the largest tax rate differences appear between $20,000 and $80,000. For Quebec taxpayers whose income is between these two thresholds, they find themselves paying nearly 30% more in income tax than they would pay if they were subject to the Quebec tax system. ‘Ontario.
If there is an income tax reduction, it must target where the benefits will be the greatest for Quebec workers.
The year of eco-taxation?
Data from the Taxation Report published by the Research Chair in Taxation and Public Finance at the University of Sherbrooke show that tax administrations in Quebec underuse eco-taxation. Barely 3% of tax revenue collected bears the label “ecofiscality”.
Ecofiscality in Quebec revolves mainly around the taxation of fuels and carbon. Even if, on the international scene, Quebec appears in the comparison with the advanced countries as being the third place where fuel taxes are the lowest, from a Canadian perspective, it is here that they are the highest. .
What’s more, it must be recognized that on the side of the price per liter of gas, taxpayers seem to be more marked by the factor of a bullish price than a bearish one. In the first part of 2022, the price of a liter of regular gasoline rose and crossed the psychological mark of $2 in March before reaching a high of more than $2.20 in June. Since then, the price has gone down. In Montreal, during the month of December, it was seen below the $1.45 mark, whereas it was $1.35 in 2013. In the absence of the carbon market component, the price would have been roughly the same as 10 years ago! Finally, if the price of a liter of gasoline in 2013 had simply increased like inflation, it should have been $1.63 at the start of 2023, a level higher than the price posted at the start of the year.
That being said, if we really want to change behavior and although this may seem unpleasant to some, we need to make greater use of eco-taxation so that the signal currently provided by the market takes the cost of pollution more into account. This is all the more true since the Land Transport Network Fund – into which fuel tax revenues are paid and whose funds are used to finance public transport services, construction and operation of road infrastructure and public transport infrastructure – is currently in deficit. Given the importance of the environmental issue, let’s hope that 2023 will see the development of a broad consensus on the need for eco-taxation. The introduction of such taxes should not be considered as a simple increase in the tax burden, but as a necessary tool for action, even if part of the increase is returned to taxpayers in one way or another. another.
On the eve of the unveiling of the 2023 edition of the Taxation Report of the Chair in Taxation and Public Finance showing that the weight of taxation in the Quebec economy has reached the highest level compared to the last 20 years , the Minister of Finance’s 2023 pre-budget consultations promise to be rich in discussions on taxation.