Wednesday, May 29, 2024

That day when it rained billions | Quebec elections 2022

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Alan Binder
Alan Binder
"Alcohol scholar. Twitter lover. Zombieaholic. Hipster-friendly coffee fanatic."

However, the challenges facing Quebec are significant and the medium and long-term economic pressures should not be underestimated. While it is true that a portion of the population needs state support to counter inflation, it is frankly dangerous to deprive the state of billions of dollars in revenue in the future.

We must remember some key elements here: the growth of the active population is weaker than in our neighbors, the growth of the economy is slowing down, and the financial needs in the health sector will only increase. Reducing taxes means permanently reducing the capacity of the state to act and transferring financial demands to pay for public services to future generations.

The one percentage point reduction in the first two tax brackets, promised by CAQ, will bring $109 to someone who earns $30,000, $329 to people who earn $50,000 a year and $810 to people who earn $100,000. This reduction will be implemented from 2023.

The 1.5 point reduction in the first two tax brackets, promised by PLQ, will bring in $150 for someone who earns $25,000, $525 for someone who earns $50,000 and $1,125 for someone who earns $100,000. This reduction will apply from 2022.

CAQ also adds a December exceptional check of $400 for people who earn between $50,000 and $100,000 annually and $600 for people who earn $50,000 or less annually. The purpose of this measure is to help nearly all Quebecers cope with the effects of a sudden rise in inflation, which will help the most disadvantaged in particular. But, by targeting such a wide range, it is possible that this new financial injection will lead to increased inflation, which will eventually be… counterproductive!

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Other measures introduced by PLQ target more people who need help, notably eliminating QST on basic necessities and improving the five-year Solidarity Tax Credit. These are two metrics that can sustainably help low-income people.

Use the Generations Fund

What struck me at the start of the campaign was to see CAQ choose to cut payments to the Generations Fund by 39% to fund the tax cuts. This approach enables the government to protect its revenues from its own sources, but in this case also reduces the scope of the Generations Fund, whose mission, since 2006, has been to reduce long-term debt, out of equity for future generations. It’s as if we’re asking them – these future generations – to pay our tax cuts today!

By cutting payments to the Generations Fund, the CAQ must also calculate the return it will miss by not pumping the amounts required by law. For 10 years, the fund has generated returns of 4 to 12% per annum. In making this choice, should the CAQ not add to its account the cost of foregone returns on the uninvested amounts in the Generations Fund? What is this cost?

On the PLQ’s side, we plan to fund the retroactive tax cut for the entirety of fiscal year 2022 by running a larger deficit and increasing income tax by $300,000 or more. The party promises to reveal more details about its proposals in its financial framework, but we can already say that the PLQ appears ready to agree to a return to a deficit that may be structural.

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This huge amount of tax deductions and fees is baffling. The population is clearly open to lowering the tax burden as inflation accelerates. But it is the duty of political parties to manage public finances wisely, paying attention to intergenerational justice. The billions of rain that fell on Monday raised fears of bad weather for Quebec’s public finances in the future.

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