Quebecers and tax cuts

There will always be good reasons not to lower taxes in Quebec. Today as 10, 25 or 40 years ago.

Posted at 6:30 a.m.

This reflex probably comes from our social-democratic heart, dear to René Lévesque, who made Quebec a land less violent — whatever people may say recently — and less unequal than anywhere else in America.

There will always be good reasons to put more money into health, more money into education, more money for the less well-off because regardless of the times, there will always be glaring problems to solve. .

But putting in more money, is that really the solution, knowing that Quebec is ninth among the most spendthrift states in the world, which also gives it the ninth rate of fiscal pressure, essentially1.

Some refer to the fragility of our public finances and the government’s greed in the face of collective services, but these claims do not stand up to analysis of the pre-election report (which was endorsed by the Auditor General of Quebec, need I remind you) .

Our surpluses

Quebec ended 2022 (March 31) with a surplus of $3.3 billion, and the report projects surpluses for each of the next five years ranging between $1.8 and $3.3 billion.

Oh, and beware, these expected surpluses have been subtracted from a provision for economic risks of 2 billion for each of these years, which will be available if these risks are lower than expected. In short, significant surpluses are expected2.

Our public services? Reading the report, we see that they benefit from a significant and recurring reinjection of funds.

Within three years, the government will have added 20 billion in state missions, a jump of 17% (or 5.4% per year, on average), according to the report’s data. The increase is well above the expected inflation over this period (3.8% per year).

Health eats everything? Well no. The jump is 22% over three years in health, but 30% in higher education, 23% for municipal affairs and housing and 19% in education, well above the expected inflation.

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Repairs to schools, roads and other infrastructure are shunned? Wait and see. For several years, the government had a plan to invest approximately $90 billion over 10 years, according to what is called the Quebec Infrastructure Plan, or PQI. However, this sum has gradually increased from 91 billion in 2017 to 142 billion in 2022.

Certainly, it would take even more money to restore our network to good condition, and restore old assets before adding too many new ones, but who can claim that Quebec is standing idly by?

In short, with regard to our public finances, the tax cuts, proposed by three of the five parties, are far from being irresponsible and will not be financed by a form of austerity… provided that they are reasonable, of course.

The inflation argument

The final argument against tax cuts is the impact they would have on inflation. The logic is as follows: giving money to taxpayers is likely to stimulate demand for goods and services and raise prices even further. This would therefore be detrimental to the efforts of the Bank of Canada and it would be preferable not to do so.

But is tax relief of 2 to 3 billion likely to significantly influence inflation, knowing that the tax cut would represent only 1% of the 250 billion dollars spent by Quebec households this year?3 ?

Above all, the alternative solution mentioned to the tax cut is to leave the money in the hands of the government, which could use it to improve our services.

Now, the government’s expenses with our taxes are as much inflationary as those of the taxpayers.

They could even be more so, since the government spends its funds locally, essentially, while tax cuts cause leakage, i.e. taxpayers partly spend the money elsewhere (on trips , for example) or save it, a portion that hardly stimulates our inflation.

In fact, the only way not to create inflation, in this context, would be for neither the taxpayers nor the government to spend this money, and therefore for it to be used to reduce the debt, for example. Do I need to rewrite that our public debt has melted below the bar that we collectively set for ourselves 15 years ago?

“I doubt the tax cuts will be inflationary, as they will come in an economic downturn. They come at a good time in the economic cycle. They will have a compensating effect, allowing households to curb the growth of their debt service [paiements mensuels de dette] “, argues Stéfane Marion, chief economist of the National Bank.

In short, tax cuts are not disconnected in the current context.

Especially since lower taxes on income are generally likely to encourage work, an element to take into account in this era of labor shortage 4.

For once that Quebec has the means, could we pocket the proposed $300 to $1,200, according to our profile, without feeling guilty, without imagining the disaster that these tax cuts would cause? And be happy with the relief they bring to our personal finances, hard hit by the inflationary spiral and rising interest rates?

Clarification on the room for maneuver

I need to clarify something in the column on the Generations Fund. I pointed out that by keeping the debt constant at 35% of —rather than letting it continue to fall—there would be room for maneuver after five years, even after lowering taxes and increasing government spending. infrastructure. However, a margin of the order of 9 billion, non-recurring, excludes any new annual increase in infrastructure spending. Mea culpa.

1. For details, consult the following two documents from the CFFP of the University of Sherbrooke:

2. These surpluses are before payments to the Generations Fund, and therefore comparable to those measured elsewhere in the other provinces. The budgets will be in deficit by 1.3 billion to 1.9 billion after the payments to the Generations Fund, according to the report, but the payments to the Fund increase by 50% over the period (5.2 billion in 2026-2027).

3. Of this sum, approximately 11% goes to food, 15% to transportation and 22% to housing, in particular.

4. This argument is valid, but it is true that this incentive to work is generally stronger when it is the maximum marginal rate that is reduced, and not the rates of the first two levels, as the three political parties propose.


The article is in French

Tags: Quebecers tax cuts

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