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Think Tank Calls For Bold Budget From Québec

by Mike Godfrey,, Washington

06 March 2015

The Québec Government could improve the province's economic prospects by targeting high and uncompetitive taxes in this month's Budget, according to the think tank the Fraser Institute.

In a new study, the Institute points out that Québec's personal income tax system features some of the highest rates in Canada. Those earning above CAD50,000 (USD40,066) face the highest provincial income tax rate in the country, at over 16 percent. This is more than twice the provincial rate in British Columbia.

The Fraser Institute calculates that, when all types of taxes are considered (federal, provincial, and local), Québec families endure the third highest total tax burden in the country. In 2014, an estimated 44.7 percent of an average Québec family's income was spent on taxes.

A Québecker earning CAD150,000 "loses" around 50 cents for every extra dollar earned to personal income taxes, the study says.

The Institute also argues that Québec's payroll taxes are uncompetitive relative to those of other provinces. Québec does not participate in the Canada Pension Plan and maintains its own Québec Pension Plan (QPP). The QPP rate increased to 10.35 percent in 2014, and the Government intends to raise it to 10.8 percent in 2017. In addition, Québec is the only Canadian province that levies employer payroll taxes with no exemption for businesses with smaller payrolls.

At 11.9 percent, Québec's provincial corporate tax rate is in the mid-range. However, as the Institute notes, Québec is competing with other provinces, including those with lower rates, for investment and as a business location. Montreal has historically been a hub for corporate headquarters, but its share of such businesses has declined, with cities in other provinces, such as Calgary and Vancouver, becoming more competitive. The Institute argues that Québec could help support its competitiveness through changes to its corporate tax system.

Charles Lammam, study co-author and Associate Director of Tax and Fiscal Policy, said: "High and unproductive taxes make it harder for Quebec to attract and retain skilled workers, entrepreneurs, and investment, which help drive the economy forward. In Quebec's upcoming Budget, reducing and reforming government spending would create the fiscal capacity to rein in debt and reform taxes while avoiding future budget deficits."

The Québec Government recently established two independent committees to make recommendations on improving the provincial tax system and on reviewing the effectiveness and efficiency of existing government programs.

TAGS: tax | investment | business | pensions | entrepreneurs | budget | corporation tax | payroll | corporate headquarters | tax rates | social security | Canada | tax reform | individual income tax

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