This text is taken from Courrier de l’économie. Click here to subscribe.
The tax cut promised by the Coalition avenir Québec during last fall’s election campaign should – in all likelihood – materialize on Tuesday, when the Legault government will table the first fiscal year of this second term.
So what can we expect?
Quebec should lower the first-tier and second-tier personal income tax rates by one percentage point. At least that’s what was promised. However, it cannot be completely ruled out that the government will make changes.
The Ministère des Finances notably consulted experts, including those from the Chair in Taxation and Public Finance at the University of Sherbrooke, to find out what would be the best way to reduce personal income tax. It remains to be seen what the government will do with the recommendations it has received.
Is this measure fair?
The question is debated, because it is not only low and middle incomes who will benefit from this measure, but all Quebecers who pay taxes, including those who earn more than $100,000 a year.
To understand, let’s briefly recall how the tax brackets work. If you have taxable income of $100,000, your first $49,275 will be taxed at the Tier 1 rate (currently 15%). Then the portion of your income between $49,275 and $98,540 will be taxed at the rate of the second (20%), and finally the third portion between $98,540 and your income of $100,000 will be taxed at the rate of the third (24 %).
So: everyone who pays tax would benefit from the tax cut. But not everyone would benefit from it in the same way…
For example, a single person living alone with a taxable income of $20,000 will benefit from a tax saving of $8, the equivalent of a tax reduction of 6.7%. A person who earns $100,000 will receive a tax saving of $814, or a tax reduction of 5.4%.
If the government goes ahead with a tax cut, the Chair in Taxation would instead propose adding a fifth tax bracket and modifying the rate grid — in order to increase tax savings for those who earn between $50,000 and $90,000 and to reduce the tax savings of those who earn more than $92,000 and therefore to make the measure fairer.
On the side of the Institute for Socioeconomic Research and Information (IRIS), we are simply asking to give up this tax reduction – either to better finance public services, or to devote this money to the fight against climate change. , or even to better target tax assistance to households hardest hit by inflation (for example through non-recurring cheques).
In a recent study on the subject, IRIS researchers point out in particular that the CAQ’s proposal will not benefit the least well-off Quebecers, that is, those who earn less than $17,183 and who pay no tax.
How will the CAQ tax reduction be financed?
This tax cut would cost the Quebec government $1.85 billion per year and would be financed by a reduction in the payments provided for in the Generations Fund (intended to repay the debt) for the years to come.
In other words, to finance a drop in income (resulting from the tax cut), the government will not reduce its expenditures (e.g. on health or education), but will devote less money each year to repaying his debt.
Is it risky? “We, what we are going to monitor is whether the government is able to reach a target within a horizon of 10 to 15 years, while reducing payments. For us, this is a prerequisite for a tax cut,” says Luc Godbout, of the Taxation Chair.
“If the government goes ahead with this measure, the changes that will have to be made to the Act [sur la réduction de la dette et instituant le Fonds des générations] will also have to be clarified”, also indicates her colleague Suzie St-Cerny.