On Tuesday, November 20th, the Parti Québécois released its first budget since taking office. This budget was widely anticipated in view of the many fiscal promises the PQ had made during the campaign, most of which where fairly progressive in nature. In the end, the exercise was (aptly) described by Marc Van Audenrode, who followed the proceedings and interviewed with Radio-Canada, as a “non-event”. For all intents and purposes, the budget could have been delivered by a liberal government… and certainly, given its content, there was no need to rush things ahead of the usual spring schedule.
Pressured by financial markets (rating agencies had hinted they might reconsider their assessment of the provincial debt and the Caisse de Dépôt if they did not like the budget) and the local economic elite, the government reneged on most of its fiscal promises (Alec Castonguay also posted a list of promises and actual actions here):
– The PQ had said it would put two new brackets for high incomes, they only put one at 100 000$ (1.75% tax increase) (the highest one for the current year was at about 80 000$);
– The PQ had said it would tax capital gains at their full value, they kept the status quo;
– The PQ had said they would abolish the tax santé (which was a flat tax of 200$ above a certain income level), they made it progressive with plateaus (0 until 18 0000, gradual increase to 20 000$ to reach 100$, where it stays until 40 000$, gradual increase to 42 000$ to reach 200$, where it stays until 130 000$, gradual increase until 150 000$ until the tax reaches 100 000$, where it stays therafter);
– The PQ had said it would cancel the electricity rate increases announced by the Liberals, they instead made it less (indexation). Btw, this increase is then supposed to go entirely to repaying the debt…
– The PQ had promised to increase royalties paid by mining corporations as well as put a surtax on high profit rates. They said they were still consulting on royalties and did not say anything on profit taxes.
Instead of increasing upper income taxes, the government chose to increase the sales tax on alcohol and tobacco. The finance minister also said that they would ask for more dividends from all three crown corporations (Hydro, Loto-Québec, and the Société de Alcools du Québec). One wonders if that means the government is hoping that we drink and gamble more.
The government also increased an extended a temporary measure the Liberals had put in place through which they were taxing the salaries paid by financial institutions. The tax rate ranges from 2.2% to 2.8%, as some institutions (e.g. Caisses Populaires) have to contribute less.
Finally, the government had promised to push firms in the primary sector to do more transformation in the province. All they have done so far is to give a tax credit on long term investment of more than 300 million$. Interestingly, the tax decrease budgeted for this is very low, so the government does not seem to think it will do much.
All in all, then, more regressive taxation than they had announced and less taxation on capital gains and high income (the former does not quite make up for the latter).
Meanwhile, the government decided to strap itself in a balanced budget straightjacket. They’ll be doing a deficit this year and then will have a balanced budget next year. Since they decided to forego some of the revenues they had promised to go gather and the economy is slowing down faster than anticipated, this means spending reductions. The biggest one is a decreas of 1.5 billion$ in infrastructure spending (down to 9.5$). The government claims that the reduction in corruption (via the review law they put in place earlier) should account for most of that, but this is hard to believe. In practice, it should mean less infrastructure construction, which is problematic because Québec is in part doped on infrastrure projects (a lot of the road network in Montreal is currently being refitted, for example). This could exacerbate the slowdown, leading to more cuts if the government remains committed to balancing the books and loath to go get money from wealthier taxpayers.
There are some good measures in there as well. They did announce an increase of the number of new subsidised daycare openings, for example, as well as the creation of a development bank to facilitate the handing out of subsidies (this could presumably become a tool of industrial policy in the future). Also, they did announce the construction of low income housing… in three years, probably after the next election.
Overall, the PQ government comes well short of what they had advertised during the election and even in the first few weeks of their mandate. They did manage to make financial markets relatively happy, while sending a fair share of the bill down the income ladder. This is frustrating, because politically, they could have basically done all that they had advertised, even in a minority position: The Liberals have no leader and anyway, defeating the government would mean elections during the holidays, which nobody wants. Like the two opposition parties, the targeted constituencies were howling in the last few weeks, but again, most of it was posturing. Nobody is going to close shop in Québec because of a tax increase that does not even cacel the tax cuts of the last decade… or stop mining here because profits from the extraction have a higher tax rate if they are very high.
It is also frustrating because the first few weeks of the mandate had heralded some real change. The closing down of the only nuclear reactor in the province, the moratorium on hydrofracking, and of course the cancellation of the tuition increase where all positive signs that the government would try to do as much as it had advertised in however much time it would be given. This budget now signals that, after all, it may be pretty much business as usual on fiscal issues. Let’s hope it at least stays the course on other matters, such as the environment.
- Banks and Balanced Budgets (January 22nd, 2015)
- Louis-Philippe Rochon’s Top 10 Economic Predictions for 2015 (January 11th, 2015)
- Why the economy sucks (in one chart) (November 12th, 2014)
- Andrea Horwath’s Debacle (June 15th, 2014)
- Don’t believe the (LNG) hype (April 30th, 2014)