New Quebec Premier Pledges Tax Reform

by Mike Godfrey, Tax-News.com, Washington

14 July 2003

The incoming premier of Quebec, Jean Charest, has pledged to reform the province's unwieldy and Byzantine tax legislation, which he described in his inaugural speech at the opening of Quebec's 37th legislature as "an obstacle to development" and "a tangle that poisons life for entrepreneurs."

Quebec is one of the more highly taxed provinces in Canada generally, and has the highest rate of income tax in the country. When all federal, provincial and local taxes are taken into account, the average Quebec resident can expect to hand over more than 40% of his salary in taxation. The province's tax burden has also been following an upward trend over the last two decades, rising from 38.7% of provincial GDP in 1982 to 44.2% in 2000, according to figures recently reported in the National Post.

The province's tax code is also notoriously complex - the Quebec Tax Act consists of some 1,210 articles spread over 2,400 pages and in electronic form requires 11 megabytes of storage. And this does not include the Retail Sales Act, the Tobacco Tax Act, the Act Respecting Application of the Taxation Act, or countless other administrative documents and regulations.

The regulatory burden is also particularly high on the business sector in Quebec, and firms in the province must annually submit to 459 regulatory formalities such as the creation of production reports, registrations and administrative authorizations. In total, these formalities are conducted an incredible 17 million times per year.

Whilst the government claims to have simplified the tax code in recent years, the sheer volume of rules and regulations gives an indication of the sizeable task that the Charest administration faces. According to the National Post, in April 2003, around 473 laws were in effect covering some 15,000 pages of text, plus an additional 2,345 regulations equivalent to 21,000 pages. Last year alone, the government incorporated laws covering 8,789 pages and it is estimated that to read the entire 11,000 pages of new regulations, it would take someone working a 40 hour week over a month to complete.

Naturally, the cost of maintaining such a bureaucratic system is high, both in terms of money and time. A working group established to find ways of reducing the administrative burden discovered that Quebec firms devoted about 15% of their income towards complying with the maze of government rules and regulations. Similarly, a study conducted by economic think-tank, the Fraser Institute found that the cost of compliance throughout Canada was equal to $13,700 for each four member family.

The situation is not helped by the fact that one in five Quebeckers is employed by either the federal or provincial government, a level much higher than in other provinces such as Ontario (16.4%) and Alberta (15.6%). Consequently, Quebec can claim to be probably the highest taxed state throughout North America, but ranks 52nd out of 60 North American states and provinces in terms of standard of living. Observers have suggested that this merely demonstrates the poor value for money that Quebeckers are getting for their tax dollar.

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