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An offer he can't refuse: Recommendations for tax reform in Québec

September 25, 2015

2-minute read

Two weeks ago, my colleague Francis Fortier and myself, Guillaume Hébert, took part in the parliamentary consultations into the Godbout report. The report, filed last March, could soon lead to the most important tax reform the province of Quebec has seen in years. IRIS contributed to this reflection and, like the Godfather, made Finance Minister Carlos Leitão an offer he can't refuse.

In June, the Finance Minister had invited IRIS to join in as the National Assembly reflected on the conclusions of the Godbout report.

However, going over the report, we realized that we were in a bit of a pickle

First, as was expected, it contained the recommendation to reduce income taxes and, to do so, to increase other forms of taxation. Luc Godbout has been pushing for this transition for years: he claims that it will make for a more dynamic economy. The government of Quebec has already started to move in that direction ever since the beginning of Finance Minister Raymond Bachand's "cultural revolution" in 2010.

Over the last few years, IRIS has written extensively about this revolution to demonstrate just how regressive it is to charge for services (including in Scandinavia), i.e. it requires the less affluent to pay proportionally more than the rich in relation to income. In contrast, IRIS has proposed that the tax system in Quebec be made more progressive.

So why are we in a pickle? Because there are many very good recommendations in the Godbout report. Indeed, increasing the number of tax brackets has been a recurring demand for years, voiced by various groups in Quebec. Another example: the report does an impressive job of dusting off the tax credits and deductions currently mainly taken advantage of by those who can hire experts to file their taxes, i.e. the wealthy.

All in all, in contrast with the shoddy (again), even embarrassing job done in the Robillard report on revision of governmental programs, the Godbout report is an interesting contribution and it opens up the possibility of improving taxation in Quebec.

IRIS worked hard throughout the summer, playing around with the recommendations. The goal was to find a way to both hit all of the report's three criteria (lowering income taxes, achieving fiscal neutrality for the state and for taxpayers) while still reaching progressive objectives, i.e. reducing inequality in Quebec.

If we managed to do so, we would get to a result that allowed us both to retain the progress made in the Godbout report and to ensure that the Minister would not be able to simply brush aside our adjustments.

We did it. We succeeded. How?

By increasing the number of tax brackets from four to ten.

By abolishing the highly regressive increases in excise taxes (tobacco, alcohol, gas).

By cancelling the price hike in heritage pool hydroelectricity.

By maintaining an Excessive Electricity Use Tax that only applies to 50% of the population, the revenue of which should be directed in part towards better insulated housing.

By adding $800 million to the Solidarity Tax Credit, a transfer that allows for higher redistribution than that needed to neutralize the impact of increasing the QST.

By fiddling with the tax credits and deductions that Godbout proposed.

In the end, instead of increasing inequality, these Godbout report recommendations as amended by IRIS ensure that inequality decreases.

Therefore, we made the Minister an offer he can't refuse.

At the very end of the proceedings, right-wing CAQ MNA François Bonnardel asked us a really short question ("QST?") to which we only had seconds left to answer.

What I would have liked to say is this: "Increasing the QST is unacceptable if it is extracted on its own from the global (progressive) proposal to be found in our memorandum because it would then become regressive."

All in all, IRIS's proposal reduces inequality by making taxation more progressive in Quebec, as we always do when we tackle taxation issues. We've also stuck to the criteria and objectives that were set by the Godbout Commission.

Therefore, unless Minister Leitão states that he favours increasing inequality in Quebec, he can't refuse the new and improved version of the Godbout report recommendations as proposed by IRIS.

Guillaume Hébert is a researcher with IRIS, a Montreal-based progressive think tank.

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