Quebec Considers Tax Cuts Amid Revenue Gains, Couillard Says

  • Canadian province expects to balance budget again this year
  • Quebec will be ‘prudent’ with any tax reduction, premier says

Quebec’s revenue is coming in faster than expected, giving the province leeway to consider cuts in income taxes that are among the highest in Canada, Premier Philippe Couillard said.

“I’m not going to put Quebec back into a deficit but I understand the merits of tax cuts,” Couillard said Monday in an interview at Bloomberg headquarters in New York. “We are looking at different options. I would not rule out further action on the tax burden, but we are going to be extremely prudent. We will have to see how solid the revenue stream is.”

Canada’s second-most populous province is poised to record a budget surplus of at least C$1.8 billion ($1.4 billion) for the fiscal year that ended in March, Finance Minister Carlos Leitao said last week. Leitao’s most recent budget calls for the books to be balanced in fiscal 2016-17, though revenue this year is exceeding forecasts, Couillard said Monday.

The tax cuts would provide relief for workers in Quebec, who are among the most heavily taxed in North America. When federal and provincial rates are combined, taxes can eat up more than 50 percent of income for the top earners.

Leitao’s March budget already contained some breaks for taxpayers, including a gradual elimination of the so-called “health contribution” for individuals. That move will deprive the government of about C$760 million once the measure fully takes effect in 2018.

More than half of the unexpected surplus for 2015-16 will probably be allocated to a “stabilization reserve” that will finance new spending, while the remainder is directed to the province’s C$10 billion Generations Fund, Leitao said last week. The Generations Fund is invested by the government to boost returns and lower the province’s net debt.

“Strategic” investments resulting from the surplus will mostly target education, health care and economic development, Couillard said, echoing comments that Leitao made last week. The premier didn’t provide specific figures, saying only that his government would focus its health-care efforts on areas such as senior care, home care and mental health.

Quebec’s surplus reflects two main favorable trends: higher-than-planned revenue and smaller-than-expected interest costs -- a direct result of lower borrowing costs. The trick for Leitao will be to figure out which part of the revenue increase will stick, Couillard said.

“Carlos tells me that he believes part of the increased revenue is going to be recurrent,” Couillard said. And while revenue so far in 2016-17 is “a little bit more than what we expected, it’s too early to say if we’re going to end up with a surplus.”

Quebec’s economy is expected to grow about 1.5 percent this year, compared with 1.2 percent for Canada, based on economists’ estimates compiled by Bloomberg.

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