Quebec needs to make up the economic ground lost during the pandemic before it can balance its books, which will take another six years, Finance Minister Eric Girard said Thursday.
Girard tabled his third budget since becoming finance minister and forecast a deficit of $12.3 billion for this fiscal year. He also estimated the damage caused by the pandemic will leave a structural deficit of $6.5 billion.
He said his plan is to balance the books by the 2027-28 fiscal year. To succeed, he added, the government will need to amend a law that requires the state to return to a balanced budget five years after posting a deficit.
The minister also proposed several tax changes.
Small business deduction increase
Girard tabled an increase to the small business deduction (SBD) rate. As of March 26, the SBD is proposed to rise 8.3% from 7.5% — meaning that the provincial small business rate would drop to 3.2% from 4% (the corporate tax rate in Quebec is 11.5%).
For business owners with a sufficient number of paid hours to take full advantage of this deduction, their first $500,000 of active income would be taxed at 12.2% (9% federally; 3.2% provincially) rather than at 13.0% (9% federally; 4% provincially).
To account for business closures due to the pandemic, Quebec corporations may ask to use the prior year’s number of hours worked for taxation years ended after June 30, 2020 and before July 1, 2021.
Tax on financial institutions
The compensation tax for financial institutions doing business in Quebec will no longer be abolished as of April 1, 2024, as was previously announced.
The rationale, according to the budget, is to have these companies continue to contribute to the financing public services. The province expects to collect $546 million combined in 2024-2025 and 2025-2026.
The compensation tax is levied on salaries paid by financial institutions such as banks, savings and credit unions, and securities firms.
Quebec sales tax harmonization
Girard indicated that as of July 1, Quebec will require online rental platforms like Airbnb to charge Quebec sales tax, harmonizing the regime with the federal government’s.
Over five years, these measures should enable the Quebec government to collect $810.5 million, including approximately $98 million during the 2021-2022 fiscal year.
Quebec has charged sales tax on intangible goods, such as digital streaming services, since 2019, allowing Revenu Québec to collect more than $215 million as of Dec. 31, 2020.