Analysis | Is it really the right time to lower taxes in Quebec? | Quebec Budget 2023

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Analysis | Is it really the right time to lower taxes in Quebec? | Budget du Québec 2023

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Minister Eric Girard confirmed on Tuesday that the Legault government would keep its promise campaign to lower taxes.

Despite Quebec's deficits and rising debt, the Legault government decided this week to honor the flagship promise of its last election campaign: a tax cut representing an expenditure of $1.7 billion per year and more than 9 billion over six years. If the people voted for that, does the government have the means to do so?

Just before starting our interview during the closed budget session in Quebec City on Tuesday, the Finance Minister Eric Girard asked me if I had come to terms with the promised and now announced tax cut.

I don't recall giving an opinion in for or against the tax cut. But I remember very well having talked about it extensively, especially on the show Zone économique, because this choice deserves to be debated, analyzed, weighed, given all that a tax cut implies.

This tax choice is political; he was at the heart of the Coalition avenir Québec (CAQ) electoral platform. Honoring election promises is a dignified gesture. But that does not mean that it is the right economic and fiscal gesture to make. Saying that we are lowering taxes because we promised to do so is not a complete justification for the decision.

Among all the criticisms heard in recent days about the tax cut, some have said that this money should have been reinvested in health or education. Others questioned the timing of the tax cut. Should the Government of Quebec have postponed its tax cut? finances-quebec-eric-girard-caq-budget-2023-2024-24349.JPG” media=”(min-width: 0px) and (max-width: 99999px)”/>

Quebec's 2023-2024 budget was tabled in the National Assembly this week. (File photo)

The Prime Minister attacked the CEO of the Conseil du patronat du Québec, who questioned the “timing of the tax cut, claiming that he is close to the Liberal Party of Quebec. Karl Blackburn responded to the Prime Minister on Tuesday evening at Economy Zone, showing himself to be shocked by the insinuations of the head of government and specifying, at the same time, that he had no intention of going into politics at all.

The Prime Minister knows very well that the CEO of the Conseil du patronat has no choice but to speak on behalf of his members, and that he could not defend his position if he had not not have the necessary support to do so. It's like that in the business world, it's like that in the union world. And it is also in politics. Toe the party line!

It should be understood that the Employers Council is questioning the timing of the tax reduction, and not the reduction in tax burdens per se, which is continually demanded by the business community. The questioning of the Conseil du patronat is obviously not ideological; it does not even question the political choice as such, which is to lower taxes rather than inject more money into public services.

The question that arises is simply whether it is appropriate to lower taxes, while the government is multiplying deficits and does not expect a return to balanced budgets before 2027-2028. Is it appropriate to divert these revenues intended for the Generations Fund to tax cuts, which will contribute, with the additional investments announced in infrastructure, to an increase in the debt-to-GDP ratio this year, by 37.4% to 37.7%?

Quebec Premier François Legault answered questions from journalists on Wednesday morning about the CAQ budget presented the day before . (File photo)

At the same time, Minister Girard says his tax cut will boost the economy by 0.3 percentage points in the short term, at a time when a recession is looming. In this sense, could this tax cut be timely?

But despite the coming months of recession, do we really want to stimulate the economy, when the priority is to beat inflation? The inflation rate is 5.6% in Quebec, higher than the Canadian average, at 5.2%, and the rate in Ontario, at 5.1%. The inflation rate is two to three times higher than the Bank of Canada's target of 2%.

The tax cuts will be felt as early as July in the wallet of Quebecers, after the injection of approximately $9 billion in tax measures in 2022.

Let's go back to the Prime Minister's remarks about the CEO of the Conseil du patronat. This is not the first time that François Legault has chosen to personalize the issues rather than discuss the substance of things. And he's not the only one to do it, by the way.

In response to Montreal Mayor Valérie Plante expressing her disappointment with low investment in social and affordable housing, Minister of Social Solidarity and Community Action Chantal Rouleau said Ms. Plante always wants more money.

Montreal Mayor Valérie Plante believes that the Legault government chose, in its latest budget, to ignore the housing crisis and the long-term funding of public transit companies. (File photo)

Many saw in these comments arrogance and contempt. These remarks above all reflect a lack of understanding of the economic issues related to housing. The housing shortage is very real, at home and elsewhere in the country, and market conditions favor a marked increase in rents.

By announcing the construction of only 1,500 new affordable housing units, Minister Girard disappointed more than one. The government says the Solidarity Tax Credit will be increased by $78 on the housing component to help people who benefit from it pay their rent. But is that enough, Minister?

This decision suggests that the Legault government is not taking the housing crisis seriously, while tens of thousands of households are waiting for housing, the majority in the greater Montreal area.

RBC economists Robert Hogue and Rachel Battaglia published alarming data this week on the lack of rental housing in Canada. The rental vacancy rate is currently 1.9% across the country, as the significant increase in immigration levels in Canada is fueling demand.

Furthermore, with the drastic rise in interest rates over the past year, a growing number of households are no longer able to have access to property and are turning to the rental market, which is further fueling demand.

At the current rate, Canada will be short 120,000 rental units by 2026, according to RBC. The institution's economists claim that 332,000 units would have to be built by then to hope to reduce the rental vacancy rate to a level deemed reasonable by 3%.

Rising interest rates, inflation, reduced access to home ownership, rising rents, all these factors contribute to a marked increase in the number of workers holding more than one job in the market.

Precariousness is at the rendezvous for many households, which would undoubtedly have appreciated a little more felt support from their government.

One ​​has to wonder why wealthier taxpayers will be entitled to an $814 tax cut, when there is a housing crisis and many citizens hope with all their hearts never to have to visit a hospital, these days, and find yourself in a healthcare system struggling with structural, deep and worrying problems.

If it is legitimate to want to reduce the tax burden , as the CAQ has promised, it is just as legitimate to wonder if this is the right time to carry out such a policy and if we really have the means.

Should the government not ensure that it provides adequate assistance to the less fortunate and that public services operate efficiently before reducing its fiscal scope by lowering, as never before, its taxes?

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