Quebec Tax Changes
The comments on my post about Ignatieff and corporate tax cuts have turned into a debate about Quebecâ€™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 Iâ€™m having a hard time believing that youâ€™re interested in reducing poverty and/or inequality.
In fairness, none of the PEFâ€™s bloggers had commented on the Quebec budget, let alone dismissed it. However, Quebec progressivesÂ criticized the budgetâ€™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.
Stephenâ€™s point is more narrowly focussed on changes to Quebecâ€™s taxes and refundable credits. In particular, he is a fan of the â€œsolidarity tax credit.â€ 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 Quebecâ€™s minimum wage would earn $18,000 per year. So, many of the working poor will be financially worse off. The tax packageâ€™s total effect on â€œpovertyâ€ depends critically on oneâ€™s precise definition of that term.
Quebecâ€™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 solidarityÂ 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 ofÂ additional revenueÂ to spend on public services. But not long ago, the Charest government was cutting personal income taxes.
I have not been following Quebecâ€™s provincial finances in any detail. However, over the years, the Charest government seems to have neither increasedÂ fiscal capacity to fund public services nor made the tax system more progressive.
Please note that this postâ€™s figuresÂ are drawn from Tables 30 and 37 of the 2010 Quebec budget (PDF).