Quebec mulls increase in sales tax, lower income tax
How would you feel about a higher Quebec sales tax, if it meant paying less income tax?
You may soon find out, if Finance Minister Carlos Leitao's proposal sees the light of day.
Leitao said Thursday in Quebec City the government is looking at increasing the provincial sales tax (TVQ) — which currently stands at 9.975 per cent — by an additional one per cent.
He said the sales tax increase would come with a commensurate drop in income tax, and that a one per cent hike in the QST would generate about $1 billion in revenues for the government.
The fiscal reforms are expected to be revenue neutral for the province but should give a much-needed jolt to the economy, he said.
"That kind of reform would put us in the avant-garde in North America and would give a strong boost to economic growth," Leitao said. "We need that kind of boost to modernize our economy."
Leitao said the government would introduce the income tax cut before a sales tax hike "a few months later" in order to assuage concerns the government was trying to sneak through a tax increase.
"If we do it — and I have the intention to do it, but I am not alone, I am not the king — we'll start by lowering income taxes," he said.
He justified the proposed change by saying it wouldn't cost the government anything to implement, and it would give households more disposable income over the year — leading to a higher GDP.
"The reform must not cost the province money. It is not an exercise to increase or lower the tax burden. The objective is not to free up additional tax revenues — the impact of a tax reform will be felt on the economy's growth, which will in turn improve people's quality of life and ultimately government revenues," Leitao said.
Proposal is 'risky,' PQ says
Nicolas Marceau, the Parti Québécois's finance critic, said a tax hike would hurt already struggling businesses.
"I think it's very foolhardy coming from a finance minister, especially during an economic slowdown. I think it's a very bad idea, it's very risky in the current economic context. Merchants are already struggling," Marceau said.
Meanwhile, Serge Petitclerc, spokesman for the Collectif pour un Québec sans pauvreté, said lowering income taxes doesn't really help people living below the poverty line.
"Every time we hear about a tax hike, either at the federal or provincial level, we know the impact will be different depending on the income of every person. For people who live in poverty, they will have to pay more every month for their basic needs," Petitclerc said.
"There is a large portion of the population that does not pay income taxes. Lowering them is profitable to those who do pay taxes, those who pay a lot."
'Consultation stage'
Leitao said the move is recommended in a report examining Quebec's taxation policies published in March.
The changes could be introduced in the next provincial budget and be implemented fully by 2018.
One of Leitao's staffers tried to downplay his minister's comments later on Thursday, telling reporters "we're only at the consultation stage. We didn't say we're going to do it, we didn't say we wouldn't."
Francois Bonnardel, a member of the legislature for Coalition Avenir Québec, said Thursday he worried government revenues would decrease due to a faltering economy, cancelling the benefits of a sales tax increase.
"We're going to follow this proposal closely but I am extremely skeptical that Mr. Leitao will be able to put this in place," he said.
