Despite the slowdown, Quebec is betting on tax cuts | Quebec Budget 2023

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Despite the slowdown, Quebec bets on tax cuts | Quebec Budget 2023

Quebec Finance Minister Eric Girard, center, is applauded as he rises to deliver the budget speech.

It was the worst kept secret in Quebec. Despite the looming economic uncertainty, the Legault government is easing the tax burden on Quebecers and moving forward with tax cuts that will affect 4.6 million taxpayers, the flagship promise of the Coalition avenir Québec (CAQ) during the last election campaign.

In a highly unpredictable context, between inflation, rising interest rates and anemic growth, Quebec believes that the tax rate constitutes a brake on economic growth.

We concluded our last mandate by making a promise to Quebecers: to help them face the rising cost of living. And that's what we did, said Finance Minister Eric Girard, who tabled his fifth budget on Tuesday afternoon.

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As expected, the government is lowering the first two tax rates for Quebecers by 1 percentage point. A drop of 15% to 14% for the first level, from 20% to 19% for the second.

The measure is immediate and will be felt very quickly, from the summer, because source deductions will be adjusted next July.

Quebec will finance the tax cuts by reducing its payments to the Generations Fund. The measure will cost $9.2 billion over six years, or about $1.7 billion per year.

This will have no impact on services, however, reassured Minister Girard at a press conference on Tuesday.

And the consequences on the wallets of Quebecers? For example, for a worker who earns an annual salary of $40,000, the reduction will be $210 in 2023.

A person who earns $80,000 a year will pay $628 in less, while for those who receive $100,000, the reduction will be $814 per year. The savings could even reach $1,627 for a couple with an income of $200,000.

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If the measure is likely to please many Quebecers who have to tighten their belts in a period of inflation, it is far from unanimous. It is applauded by the Canadian Federation of Independent Business (CFIB), which represents small and medium-sized businesses.

Finally, tax cuts! […] This is an orientation that reaches nearly two-thirds of the population and 78% of SME managers, enthused François Vincent, vice-president of the CFIB.

On the contrary, say the economists of the Institute for Socio-Economic Research and Information (IRIS), the measure mainly helps the richest.

Unfortunately, the government is going to l before with a measure that will cost almost 2 billion dollars to the Treasury and which will serve more people who do not need it, thinks Guillaume Hébert, researcher at IRIS.

A point of view shared by Sébastien Lavoie, economist at Laurentian Bank, who believes that the measure should have targeted the most vulnerable more.

I'm not sure a tax cut is necessarily a good idea in the face of an economic downturn and possible recession. And the government should have further lowered the tax bracket for people who earn less money, argued Mr. Lavoie, in an interview with Radio-Canada.

Despite the announced cuts , Quebec is still the most taxed Canadian province.

Personal income tax represents 14.3% of Quebec's GDP, very close to Ontario at 14.1%. The Canadian average is 12.7%, while that of OECD countries is much lower at 9.5%.

After toying with the idea, Quebec will ultimately not raise the minimum retirement age from 60 to 62. But the Legault government will make changes to the Quebec Pension Plan (QPP) to encourage experienced workers to return to or stay in the labor market in a context of labor shortages.

Currently, an employee had to continue contributing to the QPP even when receiving a retirement pension.

But as of next January 1, pensioner workers aged 65 and over will now have the option of stopping their contributions. So it will be optional. This cessation will concern both the employee and the employer.

Work income retained after taxes will be even more advantageous, the government argues.

For example, for a 65-year-old worker with an annual income of $15,000, the implementation of the optional contribution will increase his disposable income by $606, the budget documents indicate.

Quebec will also increase the maximum age for applying for the retirement from 70 to 72.

The government will also introduce pension protection for workers aged 65 or over who have suffered a reduction in their income.

Despite the inflationary environment, the rise in interest rates which destabilizes households and the banking system, Quebec still does not see a recession in its crystal ball.

I still estimate the chances of having a recession at 50%, a said Mr. Girard on Tuesday, denying that he was overconfident.

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If economic growth was 2.8% in 2022, it should not exceed 0.6% in 2023, allowing Quebec to avoid recession. Next year, growth is expected to pick up somewhat, reaching 1.4%. The government expects the inflation rate to be 3.5% in 2023.

The public finance situation has also improved and the budget deficit is lower than foreseen. It should now reach $5 billion for 2022-2023 (compared to $6.5 billion in the March 2022 budget forecast).

The deficit for the next year is expected to reach $4 billion, then gradually decrease by $1 billion per year. Quebec still expects a return to a balanced budget in 2027-2028.

Quebec's debt will reach $207 billion as of March 31, 2023, or 37.4% of gross domestic product . Its weight will represent 37.7% of the economy in 2024 before gradually declining.

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Reducing the debt burden remains a priority, according to the CAQ government, which is also announcing new, more aggressive reduction targets. By 2037-2038, Quebec wants the net debt to represent 30% of GDP, a position criticized, in particular by the unions.

Without any form of public debate, the Minister of Finance now imposes new reduction targets. It is not surprising that as of next year the budgets for health and social services, education […] will have budget increases well below the costs of the system, underlined the president of the CSN, Caroline Senneville .

A true mantra of Premier François Legault, the government is also maintaining its objective of reducing the wealth gap with Ontario.

In order to increase the productivity of the Quebec economy, the budget provides $888 million over five years to stimulate private investment.

The government is expanding its tax holiday for large investment projects, those reaching $100 million . These companies will be able to benefit from an income tax holiday.

The measure concerns several sectors of activity such as agriculture, manufacturing, but also the extraction of minerals critical and strategic resources on which the government is relying more and more for its battery sector.

The government also wants Quebecers to prioritize buying from here and will reserve a call for public offers to small businesses in Quebec.

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