Quebec slashes income taxes in new budget and promises more public spending

The Quebec government is plowing ahead with one of the largest tax cuts in the province’s history. 

The tax cut is the big ticket item in the 2023-24 budget, which Finance Minister Eric Girard presented at the National Assembly on Tuesday.

Girard used this budget, the first since the CAQ government was re-elected last fall, to introduce the tax cut and increase government spending while maintaining a promise to balance the budget within five years. 

“It’s really a balance,” he said. “I think we found the right compromise.”

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The tax cut will reduce the lowest two tax rates by one per cent. It’s a reduction that will save the average Quebecer hundreds of dollars and will cost the government billions in lost revenue — $9.2 billion worth over five years. 

Tax cuts are often paired with cuts to government spending, but Girard promised there would be no paring back of public services to fund the measure. 

Instead, the tax cuts will be paid for by the government making smaller payments toward the Generations Fund, a debt payment fund. This means the province only expects to meet its debt reduction goal in 15 years, instead of 10.

But the cuts are necessary, Girard said in his speech to lawmakers, because they will stimulate the economy and help address the labour shortage by giving people more incentive to work. 

“There are benefits (to reducing taxes). We’re going to reduce the tax burden of Quebecers, which is the highest in North America,” Girard said.

The cuts were a campaign promise the CAQ made during the 2022 election campaign, where voters delivered the party its second four-year mandate.

The budget also includes commitments to make good on some of the CAQ’s other campaign promises, notably, to increase spending in the health system, infrastructure and in other sectors. Government spending is projected at about $148 billion for the 2023-24 fiscal year.

The CAQ has earmarked an additional $5.6 billion over five years to make the health-care system “more efficient and accessible” bringing health spending up to $59 billion, the largest government expenditure.

It will also spend an additional $2.3 billion over five years for “developing the potential of youth,” which includes investments in the school network and vocational programs.

Economic headwinds ahead

Girard said the province’s finances are in better shape than expected. A deficit that was projected to be nearly $6.5 billion is now $5 billion.

Quebec’s gross debt by March 31, 2023, will be about $223 billion, and its gross debt-to-GDP ratio will be 40.2 per cent.

But Girard also warned of a possible economic slowdown. 

“The risks of a recession are still present,” Girard said in his speech to lawmakers, “but Quebec’s resilience means that we can be optimistic about our chances of escaping one.”

The government predicts Quebec’s economic growth will slow in 2023 to a rate of only 0.6 per cent, compared to 2.2 per cent in 2022. But the budget documents include an alternative forecast: the possibility of a recession weighing on the government’s finances and forcing it to dip into a reserve fund.

The budget documents also include a positive alternative: the possibility of the economy doing better than expected and continuing to grow as it did in 2022.

But Girard said recent uncertainty in the financial system had him thinking a recession was more likely. 

“As of 10 days ago, the instability in the financial markets makes it so that the weakest scenario is more likely than the alternative,” he said.

Girard told reporters he puts the odds of Quebec entering a recession in the next year at 50 per cent.

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Quebec can’t afford tax cuts, opposition says

The budget drew criticism from opposition parties, who argue that the government’s projections for the economy are overly optimistic and that Quebec cannot afford such broad tax cuts. 

“The government seems to be wearing rose-tinted glasses,” said Frédéric Beauchemin, the finance critic for the Quebec Liberal Party. 

“Several economists have rung alarm bells,” he added, noting that some experts were predicting a recession in 2023 or smaller GDP increases than the 0.6 per cent factored into the budget.

The Liberals also criticized the government’s health spending as too small of an increase. 

“It’s going to be increasingly difficult to provide Quebecers with the quality care they deserve,” said André Fortin, the Liberal health critic. “With such minimal increases in the budget for health care it’s going to be very difficult to attract people with the working conditions we can offer.”

Haroun Bouazzi, finance critic for Québec Solidaire, called the tax cuts “irresponsible” because they will benefit richer Quebecers but will offer nothing to Quebecers who earn too little to pay income tax. Under the tax cut plan, a Quebecer who earns nearly $100,000 a year will save $814. 

“The ship is sinking and the CAQ is giving gifts to first class and throwing life vests to the middle class and letting the others sink,” he said. “It’s unfair and it’s irresponsible.”

The budget also drew criticism from the city of Montreal. 

Dominique Ollivier, councillor for Montreal’s Vieux-Rosemont district, took issue with what she said is a lack of funding for the “crises” of public transit and housing.

“Clearly, this year, the government has made the decision to let the cities go,” said Ollivier, adding that Montreal had specifically demanded more funding in those sectors. 

“We realize that for public transport, it’s the minimum. And for housing, we clearly let the cities go.”

Faced with the criticism that the CAQ budget was offering tax cuts instead of investing adequately in public services, Girard responded: 

“We’re doing both. This is an excellent budget.”