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Expectations were high that Francois Legault and a CAQ government would deliver major tax relief, especially since it inherited a healthy budget surplus. But that appears to be not the case.Ryan Remiorz/The Canadian Press

On the campaign trail in 2018, François Legault promised repeatedly that a Coalition Avenir Québec government would “put money back in Quebeckers’ wallets.”

“In the last 15 years, Quebec families have had to cope with successive tax and fee increases. Their fiscal burden is the heaviest in Canada. This trend must be reversed,” the CAQ’s 2018 financial framework stated.

Mr. Legault, a former Parti Québécois cabinet minister who founded the centre-right CAQ in 2011, had long advocated for smaller government and lower taxes to improve Quebec’s competitiveness. Expectations were high that a CAQ government would deliver major tax relief, especially since it inherited a healthy budget surplus.

Those expectations have been dashed, however. Mr. Legault has failed to rid Quebec of its title as Canada’s most taxed province. Taxes still account for a larger share of the economy in Quebec than anywhere else in the country, and than in 31 of the 38 countries that belong to the Organization for Economic Co-operation and Development. If anything, government has got bigger under the CAQ.

In 2020, taxes raised by all levels of government, as well as contributions to public pension plans, totalled 38.8 per cent of Quebec’s gross domestic product, up from 38.1 per cent of GDP in 2019, according to the latest annual tally by researchers at the University of Sherbrooke, released last week. In 2017, the year before the CAQ came to power, the ratio stood at 38.2 per cent.

In the rest of Canada, government taxes and pension contributions equalled 33.4 per cent of GDP in 2020. The ratio ranged from 28.6 per cent in Saskatchewan to 35.7 per cent in Ontario. The OECD average was 33.5 per cent, while taxes and social security contributions accounted for barely 25.5 per cent of GDP in the United States.

The University of Sherbrooke team led by Luc Godbout, who holds the chair in Taxation and Public Finance, found that if Quebeckers had paid the same tax rates as Albertans in 2020, they would have paid $22.5-billion less in net taxes. Based on Ontario’s tax system, Quebeckers would have paid $10-billion less in 2020.

The CAQ made relatively few explicit fiscal promises during the 2018 election campaign, and it has fulfilled them. It cut school taxes for most Quebeckers. It eliminated the income-based daycare fees that the Liberals had implemented, restoring a flat $8.50-a-day rate. And it increased family allowances.

Still, given its pro-business bent, observers expected a CAQ government would move to finally reform Quebec’s outdated tax system. Quebec’s dependence on personal income taxes is the third highest in the OECD and it ranks fifth in its reliance on corporate taxes. Payroll taxes are higher in Quebec than in any other province.

Luckily for Finance Minister Eric Girard, the COVID-19 pandemic had less impact on Quebec’s public finances than almost any other province in Canada or country in the OECD. Robust federal income support for individuals and businesses (which was taxable) ensured that provincial tax revenues held up, despite an economic contraction of 2.4 per cent in 2020. In his November economic statement, Mr. Girard revised his deficit projections downward by a cumulative $9-billion by 2027.

More good news likely awaits Quebeckers in Mr. Girard’s spring budget, the last he will table before the Oct. 3 provincial election. But business hopes for a major overhaul of the tax system have mostly faded.

Quebec has long prided itself on having a more progressive tax system than other provinces. Low-income couples with children face significant negative income tax rates, thanks to generous family allowances. After-tax income inequality has declined in Quebec since the 1990s, with the Gini coefficient – a measure of the distribution of income and wealth – standing at 0.282 in 2020, according to the University of Sherbrooke report. That compares with a Canadian average of 0.299 and a ratio of 0.306 in Ontario.

However, one downside of such a progressive tax system is that Quebeckers can face punishingly high marginal effective tax rates as they move up the income scale, which can serve as a disincentive to work. That only serves to exacerbate the province’s severe labour shortage, though there is little chance Mr. Legault will fiddle with the progressivity of the tax system before the election.

In government, the CAQ has shown little inclination for the reductions in government spending and taxes that it once called for while in opposition. Mr. Legault appears to have decided he doesn’t mind bigger government, after all.

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