Despite a 50% risk of recession and budget deficits, the Legault government lowers the taxes of 4.6 million Quebecers as promised by using the credit card. This tax break, “the centerpiece” of his budget, averages $370 a year.
There could not be “a better timing” to reduce the tax burden on taxpayers, Eric Girard told La Presse before presenting his fifth budget on Tuesday. The Minister of Finance is betting that this measure will stimulate consumption and, consequently, economic growth at the height of the turbulence apprehended this year.
The Legault government is keeping its election promise to the letter: it is lowering the rates of the first two tax brackets by one percentage point for the 2023 fiscal year.
What do you think of this budget from Minister Eric Girard?
The first-tier rate, which concerns the taxable income bracket up to $49,275, goes from 15% to 14%. For the second level, i.e. the income bracket ranging from $49,275 to $98,540, the tax rate will be 19% instead of 20%.
The tax reduction reaches $228 for a person with a taxable income of $40,000. That’s $428 for an income of $60,000; $628 for $80,000. The respite is up to $814 for those earning over $100,000.
The tax gap with Ontario will be reduced, but the weight of personal income tax in relation to GDP will remain heavier in Quebec (14.3%) than in the other provinces (12.7% ) and the average for OECD countries (9.5%).
The two million Quebecers who do not pay taxes are not entitled to this breath of fresh air, but Eric Girard recalls the checks of $400 to $600 distributed last year – a non-recurring aid – and the increase up to $2,000 of a tax credit for low-income seniors.
The first effects of the tax cut will be seen in July – when the economic slowdown is expected to be most pronounced. The deductions at source, on the paycheque, will then be revised downwards.
The state will forego $1.7 billion a year in revenue. This is the estimated cost of tax relief to taxpayers.
The measure is financed by reducing annual payments to the Generations Fund, which is used to reduce the debt burden. This burden will increase in the short term, going from 37.4% to 37.7% of GDP in one year. It will then be reduced to 30% within 15 years, aims the government by setting this new objective. The target would have been reached more quickly, in 10 years, if he had given up cutting payments to the Fund. It’s “a good compromise”, according to Eric Girard.
To pay for the tax cut, “there will be, and I want to be very clear, no impact on services”, argued the minister.
Spending growth for all departments is still limited to 1.2%. Admittedly, Quebec is increasing its spending by 7.7% in health – mainly thanks to the increase in transfers from Ottawa – and by 6% in education. But the other departments will undergo a slimming diet. Their budgets are cut by 1.8% overall.
Despite the crisis in the judicial system, the Justice budget is shrinking by 3.1%. That of Transport and Sustainable Mobility fell by 23.5% – among other things because emergency aid to public transport companies will be less generous this year. Quebec cut around 4% from the Treasury, Economy, Employment and Social Solidarity budgets.
The deficit will reach $4 billion in 2023-2024 after deposits in the Generations Fund (compared to $5 billion for the current year). Québec maintains the objective of returning to a balanced budget in 2027-2028. It does not detail the roadmap to get there. Choices will be made later.
The President of the Treasury Board, Sonia LeBel, announces a “review of programs” and an “optimization” of resources aimed at recovering 1.5 billion per year. The size of the state will still increase this year. Some 6,800 full-time employees will be added to the current workforce of 564,400 workers.
Eric Girard says he has a “prudent” financial framework. He is counting on economic growth of 0.6%, while private sector forecasters put it at 0.3% on average (a decline of 0.2% is even forecast by Desjardins). They do not take into account the effect of the tax cut, replied the minister. He has set aside a “contingency reserve”, a cushion in case something goes wrong, of 1.5 billion for this year.
The minister also prepared two “alternative economic forecast scenarios”; one based on slightly stronger growth than expected, the other based on a recession. In the latter case, the budget would be balanced despite everything in 2027-2028 by emptying the provision for contingencies year after year, according to Eric Girard.
Quebec has “undeniable advantages” to weather a downturn, he argued. “We have a high savings rate, a low debt ratio, a diversified economy, and we are at full employment. »
The minister says he is “optimistic” of escaping a recession even if “the economic year will be difficult”.
His forecast, however, comes down to a toss-up: the risk of a recession is 50%, he acknowledged.
