Income tax reductions a holiday present for Quebecers?

Quebec residents are in full holiday shopping mode. But a comparison of rates shows that sales taxes are higher in that province than in most others, as well as higher than taxes in bordering American states.

For example, last year, a financial institution estimated that each Quebecer would spend an average of about $1,060 in gifts and entertainment during the holiday period. The sales taxes would be $138, but only C$78 in Plattsburgh, New York, and C$57 in Burlington, Vermont.

Here’s the good news: now that Quebec’s public finances are once again in balance and a modest surplus has been recorded, it’s possible that will reduce Quebecers’ tax burden, shows a report by the Montreal Economic Institute (MEI)–the report updates some recommendations from tax specialist Luc Godbout.

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Following Godbout’s report, which was published a year and a half ago, the government considered raising consumption taxes and reducing income taxes. This policy would have stimulated economic growth, given personal and corporate income taxes penalize work and investment–the motors of economic activity.

However, given the already high level of consumption taxes in Quebec, the main recommendations of the Godbout report weren’t followed. “The ideas contained in the report bumped up against the hard reality that [Quebec is] already among the most heavily-taxed jurisdictions, and we cannot afford to raise taxes even further because of the tax competition from adjacent provinces and American states,” explains Youri Chassin, research director at the MEI and author of the MEI report.

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Many Quebecers shop across the border and they also buy online from the websites of stores located outside the province. This competition prevents the government from raising sales taxes even higher than they are.

On the other hand, reducing income taxes — in order to stimulate the economy — would be entirely possible given the government’s room to manoeuvre. “Quebecers’ tax burden would remain very high, but a little bit less so than before,” says Chassin. “We’re talking about giving taxpayers back $2.7 billion out of a total budget of $102.3 billion.”

A few dollars more in Quebecers’ pockets would be a much-appreciated gift in time for next year’s Christmas shopping.

Read the MEI report here.

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