Main menu:

Posts by Author

History of RPE Thought

Posts by Tag

RSS New from the CCPA

Progressive Bloggers

Meta

Recent Blog Posts

Recent Blog Comments

The Progressive Economics Forum

The PQ budget

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.

Comments

Comment from Arby
Time: November 24, 2012, 9:38 pm

Electoral politics do not work. They are a mechanism of social control. As long as the people believe they have democracy, evidenced by the freedom to vote (in undemocratic, elite-serving elections in which candidates are not of the 99% and can never represent it), then they aren’t going to look for it. Are they?

Comment from Nick Falvo
Time: November 26, 2012, 7:35 am

Thank you for this very informative and insightful blog post, Mathieu.

Comment from Keith Newman
Time: November 27, 2012, 2:00 pm

Mathieu,
Good summary of most measures but overall I find your assessment excessively harsh. By the way you neglected to mention the very positive abolition of the absurd subsidy to Big Pharma of $175 million yearly under the 15 year patent rule.

The PQ holds a very slim majority both in seats (54 of 125) and in popular vote (32%) so its mandate is weak. Despite that they have increased the top marginal tax rate, disposed of the pointless Quebec nuclear reactor, taken away subsidies to asbestos mining, and increased $7 per day daycare spaces. Ask any working family with small children elsewhere in Canada what they would give to have that one! And there are additional positives that you note.
With respect to the balanced budget, while I agree this is unnecessary, there are significant limitations to how much a provincial government can spend since it does not issue its own currency and can therefore face serious problems regardiing solvency. Accordingly I have more sympathy for the PQ’s dilemma on this score.

Comment from Mathieu Dufour
Time: November 27, 2012, 3:15 pm

Good point on the abrogation of the 15 year patent rule on pharma and its mutation into a more generous tax credit for research expenses (the credit goes from 17.5% to 27.5%): Cheaper overall and more targeted. I guess I had glossed over it having just listened to the health minister’s offhand rejection of Québec Solidaire’s (superior) Pharma-Québec proposal.

Otherwise, maybe it is a question of expectations. The 7$/day daycare program is good – and kudos to them (and Marois in particular) for creating it in the first place, but really, their proposal is to add just 2000 places more than what the libs were going to do anyway (15 000 instead of 13 000). Can’t complain about Asbestos mining either, but there again, the subsidy was basically to a friend of the liberal party – even the CAQ had said it would review it. In that case, they are basically finishing up repairing for the mistake the PQ made years ago when they decided to invest in the promotion of Asbestos instead of figuring out an alternative for the regions affected. Some more tax progressivity is also better than none (though it is countered by regressive fees and sales tax increases)… We can add a couple more positives, like some money given to Télé-Québec so they can start doing news (welcome in the face of ever lowering financing of Radio-Canada).

So again, maybe it is a question of expectations; maybe they set themselves a bar that they could not reach. But the combination of shooting for a balanced budget in front of an economic situation which looks worse than what had been projected and not implementing a large proportion of the promised tax measures I do find very frustrating. It is true they have a slim majority (the popular vote is not much lower than what recent majority governments got, though), but what is the worse that could have happened for them politically? Going into elections, while the main opposition has no leader and would have campaigned on a “don’t tax the rich” platform? Right now, they’ll probably have to go into elections again soon, with a more organised opposition and likely less sympathy on the left (so more votes to QS). I have trouble seeing that as a better political strategy.

You are right in pointing to the positive environmental measures: The minister of environment and that of natural resources are two environmentalists and it shows. The head of the environmental review board was changed and for the first time in a while, we can hope for the serious assessment of development projects. That could help gain back some credentials on the left… except that the lure of the Great North and the potential for a home-grown oil industry are proving hard to resist.

Comment from Darwin O’Connor
Time: November 27, 2012, 6:47 pm

Forcing an election isn’t the opposition’s only option.

Not having a leader didn’t prevent the Federal Liberals from nearly removing the Conservatives from power shortly after an election. I don’t see why something similar couldn’t be done to the PQ.

Write a comment





Related articles