Quebec Tax Changes

The comments on my post about Ignatieff and corporate tax cuts have turned into a debate about Quebec’s recent budget. In particular, Stephen Gordon has thrown down the gauntlet:

The Quebec budget includes measures to increase incomes of low-income households. Why would self-described progressives dismiss that? . . . Just what is the goal of the PEF? Because I’m having a hard time believing that you’re interested in reducing poverty and/or inequality.

In fairness, none of the PEF’s bloggers had commented on the Quebec budget, let alone dismissed it. However, Quebec progressives criticized the budget’s application of a lump-sum health premium and musings about charging individuals for using the public healthcare system. Their other concerns include increased tuition fees and restricted public expenditures.

Stephen’s point is more narrowly focussed on changes to Quebec’s taxes and refundable credits. In particular, he is a fan of the “solidarity tax credit.” This expansion of existing refundable credits for low-income residents does look like a good policy.

Despite paying more sales and gas tax, the poorest of the poor will be slightly better off (by up to $200 per year). However, those making more than $15,000 per year have to pay the $200 health premium, turning the net impact negative.

To put that threshold in perspective, someone working full-time at Quebec’s minimum wage would earn $18,000 per year. So, many of the working poor will be financially worse off. The tax package’s total effect on “poverty” depends critically on one’s precise definition of that term.

Quebec’s tax changes certainly do not reduce inequality, the other goal identified by Stephen. Someone earning a middle-class income of $50,000 will pay an additional $586, about 1.2% of their income. By comparison, someone making $125,000 will pay an additional $972, only 0.8% of their income. Those with even higher incomes will pay even smaller percentages.

By itself, the solidarity credit is obviously welcome. However, the rest of the tax package is questionable.

Arguably, the regressive effect of a higher sales tax and a lump-sum premium could be more than offset by the progressive effect of additional revenue to spend on public services. But not long ago, the Charest government was cutting personal income taxes.

I have not been following Quebec’s provincial finances in any detail. However, over the years, the Charest government seems to have neither increased fiscal capacity to fund public services nor made the tax system more progressive.

Please note that this post’s figures are drawn from Tables 30 and 37 of the 2010 Quebec budget (PDF).

13 comments

  • The budget is quite a sneaky document in the way it presents the tables on the Quebec Solidarity Tax credit (QSTC). The table has work income listed in increments 10,000. At the 30,000 threshold for a family of four with both adults working it seems mildly progressive, again if we do not include hydro and or estimate of the proposed per visit medical fee (or inflation for that matter because indexing does not kick in until 2013). But the health contribution kicks in on a family of four at 30,345$ mark in 2012 (sse table 30 in the budget). That 400$ health premium means that the budget is regressive for a family of four with two working adults earning less than the Quebec minimum wage (which did go up by 50 cents to 9.50) to the tune of 155$. So my only error in my original blog post and here was that the model working poor family should have been set 5,345$ higher (and I say working poor because that income is less than two full time minimum wage salaries).

  • For simplicity’s sake, I just focussed on individuals (Table 37). However, as you note, the story is essentially the same for families: progressive at the very bottom, but regressive beyond that.

    By the way, my understanding is that Quebec’s minimum wage does not rise until May 1, which is why I assumed $9/hour (=$18,000/year full-time). But you are correct that, by the time these tax changes take effect, the minimum wage will be $9.50/hour (=$19,000/year full-time).

  • Classy. A post about my views on the Quebec budget, without a link to my views on the Quebec budget.

    Read the comments. Apparently I ‘lack legitimacy’ because – wait for it – I read the budget documents.

  • Stephen, I was engaging with the comments quoted above, so I provided a link to the place where you wrote those comments.

    Your second paragraph is evidently a shot at Travis. Maybe you guys can sort it out at the faculty club.

  • Why am I not included in your list of link to commentaries by ‘Quebec progressives’?

    You may want to think about that one a bit before responding.

  • Mr. Gordon, it never occurred to me that you would self-identify as a “progressive”. Perhaps what Americans would call a (small-l) “liberal”. Do you in fact self-identify as a “progressive”? Why? Do you have any political or economic views in common with the majority of people who do so? Favouring good outcomes for poor people doesn’t do it; if one takes them at their word, Reagan and Thatcher’s economic gurus favoured good outcomes for poor people, but the general drift of people self-identifying as “progressive” thought their claimed strategies (“trickle-down”) for doing so were rubbish.

    Incidentally, the post doesn’t actually seem in the main to be about your views on the Quebec budget. Rather, it’s about the poster’s views on the Quebec budget, given in answer to you apparently making claims about the PEF’s position on the Quebec budget before the PEF had expressed one.

  • Stephen be a mench. Yah you read the document and did not bother to query the numbers. You said 510 and I agreed. It was Erin who pointed out when the health premium kicked in. You were more happy to go by the platitudes offered up in the marquis paragraphs. Moreover, as I have well demonstrated in the update on my blog it is both regressive and progressive. And I am not done. Reading the document we find that at twice the income you have in comparison to me you pay 1,3 percent more in 2012 and I pay 2 % more. So any way you want to slice this thing it is essentially regressive both within and between classes of income. Never mistake a literal failure of bible studies for a capacity to read between the lines (income deciles in this regard). And in the case of Charest’s budget it was presented in a very sleezy fashion and upon which you are ready to go to the bank.

    Unlike you I am happy to engage in Bayesian updating without throwing in the towel. As the debates here attest when confronted with superior information you turtle.

    Unlike you, I have no problem admitting when I get something wrong. That is what serious academics do.

    And by the way it thrills me to death that my salary is being cut to fund your retirement. Don’t think the irony is not burning me.

  • Erin we do not have a faculty club, the economics department was instrumental in shutting it down because toast was being sold below its marginal price.

  • I’m not an economist, and so may not see all the nuances. However, it seems to me that broadly speaking, everyone who’s commented so far has an objective in common:

    1) Improve the condition of lower-income (and maybe middle-income) earners relative to high-income earners,

    2) through some combination of tax policy and provision of public services.

    I think some of you honestly disagree about the optimal policy mix – Stephen appears to me to want to follow more of a Nordic model – but you at least have the objective in common.

    If I’ve misrepresented anyone’s position feel free to whack me (figuratively, of course).

  • Favouring good outcomes for poor people doesn’t do it

    Surely you can’t be serious? In my mind, favouring a reduction in poverty and inequality *is* the progressive agenda.

    Indeed, anyone can say that their pet project will achieve this goal. The task of progressives is to do the hard slogging of seeing if a given policy will do the job.

    Sadly, the Canadian Left has largely abandoned this responsibility, contenting itself on fetishising certain policies (minimum wages, corporate taxes, etc) without concerning itself overly much on how they affect poverty and inequality.

  • Sadly the self satisfied, technocratic maladjusted right (AKA Stephen) does not get that the Nordic model has many elements of which the tax mix is just one. And as the kindergarten song goes you can’t have one without the others. Part of the story of less inequality in the nordic countries is wage compression; that is the before tax wage spread between income quantiles. This has been partly achieved through centralized bargaining. How many posts has Gordon written on this over at his blog? Answer: zero, corn-hole, notta. It also has partly to do with the close cooperation between social democratic parties and unions over tax transfers. How many posts has Stephen written about this? Answer: zero, corn-hole, notta. It also has partly do with the move to better integrate women in the labour force via publicly subsidized daycares? Again how many posts has Stephen written about this? Three: all against. Stephen says he is a progressive, that regressive taxes are more efficient and should allow for more redistribution after the fact. How many posts has he written doing an honest analysis of just how much after the fact redistribution is going on? Answer: zero, corn-hole, notta one. More interested in efficiency than redistribution. Quelle surprise!

    And Stephen while you here I would really appreciate to know your thinking on the following. IF as you have conceded over at your blog that min wages (within reasonable limits) have ambiguous effects, and I have yet to read your refutation of that in the AER or on your blog, then how ought should one update neoclassical price theory? Do you have an answer to that tough guy? Maybe you should put Nick on the case.

    And while we have our readers’ attention the last study I read said that min wages affect 30% of poor and near poor families. So yah not a TOTAL solution to poverty but one of many tools. And that is all progressives have ever claimed: increasing min wages will ameliorate some degree of poverty but is not THE solution to poverty.

    So you are just shadow boxing against a straw man with a defunct theory of price formation. Such deeply embedded dogmatism…it is to weep.

    Heal thyself pilgrim.

  • $9 dollars an hour, 35 hours a week, 52 weeks in a year does not equal $18,000 dollars.

    $315 a week, before taxes, multiplied by 52 weeks is around $16,000.

  • My $18,000 figure was based on 2,000 hours per year (which entails more than 35 hours per week).

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