October 2, 2012 – The Quebec Government’s new tax plan – which would replace the across-the-board health contribution of $200 per taxpayer with large marginal tax increases on high-income earners as well as increased taxes on capital gains and dividends – may result in a government revenue shortfall of approximately $800 million per year, according to a new study released today by the C.D. Howe Institute.
In the study “Killing the goose that lays the golden eggs: Impact of proposed tax increases in Quebec” (« Tuer la poule aux œufs d’or : Les impacts des hausses d’impôt proposées au Québec »), Alexandre Laurin, Associate Director of Research at the Institute, analyzes the potential impact of the proposed tax changes on taxpayers’ behaviour. Even though the government claims that the proposed tax plan will be revenue neutral, Laurin remarks that “several empirical studies have shown that taxpayers react to higher tax rates in a way that minimizes their taxable income. The proposed increases would create much lower new tax receipts than the government expects.”
The objective of the reform would be to increase the redistributive power of Quebec’s tax system, but the study points out that the Quebec tax system already leads to more equal after-tax revenue distributions than that of other provinces. According to the author, “the proposed tax measures would be an economically expensive way of increasing income redistribution in the province.”
The erosion of Quebec’s fiscal capacity may be partially offset by additional federal equalization payments to Quebec. But these transfer payments would be insufficient and would merely redistribute wealth from the rest of Canada to Quebec; what the province really needs is to have a tax system conducive to wealth creation. “Over the long term, declining economic activity and investment would lead to the relative impoverishment of Quebec society,” says Laurin.
To read the study (en français) go to: http://www.cdhowe.org/?p=19114
For more information contact: Alexandre Laurin, Associate Director of Research, C.D. Howe Institute, 416-865-1904; email: email@example.com.