Quebec Budget: Packed with Regression and a Zombie

The Quebec budget released yesterday is packed with an increase in regressive taxation (both in terms of user fees and sales taxes) and a Zombie. Let us start with the list of regressive tax measures and then move on to the Zombie (ht recreating eden ).

An increase of 1 cent a year for three years on gasoline taxes with provisions for large cities like Montreal and Quebec to levy further taxes.

While certainly regressive these are good taxes as they will raise revenue (I doubt they will curb consumption) for public transit which in Quebec city is in a rather shabby state for a national capital.

An unspecified increase in tuition fees

It can only be considered progressive if you consider the incomes of the students parents. So you have to assume students live with their parents and that they have access to their income: two dubious generalizations. I keep a running poll: fully 80 percent of my third year students have lived outside the family home for two or more years. For other thoughts see my post here.

A 1% increase in each of the next two years in the sales tax (including the increase announced in the previous years budget).

Again totally regressive. I suppose it was inevitable that a cash strapped government would move take up the tax space left by Ottawa with the decrease of the GST 5%.

A 3.7% percent a year increase in electricity fees starting in 2014-2015. All on top of the already scheduled increases.

Again totally regressive. And This comes on top of significant electricity fees over the past three years. Despite conservations measures on my end, my bill is up 20% over the last three years.

Annual $25 health-care premium with annual increases to $200 by 2012

Again fully regressive. But in line with many other provinces and not as high as BC where individuals pay 57$ a month or 684$ a year. Ontario should have been the preferred model. In Ontario, health insurance premiums are calculated on a progressive basis (see this Chart). That is, the higher your income the higher your premium. The distaste for progressive tax measures is more than evident.

There are some crumbs of progressiveness. Slightly higher royalty regime and a continuation of a profit surcharge tax on banks. Moreover there is in increase in support for poor families up to 510$ per year which Finance claims will more than offset the regressive nature of the tax package. This claim merits further investigation.

See the update here

As promised The Zombie.

In the Budget the Quebec government has committed to the idea of per visit user fees at hospitals and doctors’ offices. This idea has been tried, and tried again and has not worked. In fact it is such a bad idea that will not go away a UBC economists has dubbed it a Zombie Idea that will not die: Lies, Damned Lies, and Health Care Zombies: Discredited Ideas that Will Not Die. Not only has it not worked but it has been counter productive as poor people simply go less and get sicker and thus when they do arrive for care it is considerably more costly to care for them had the initial problem been taken care of. Think of the difference in cost between filling a cavity and root canal and you get the picture. The reason this idea will not go away is because it seems like a straightforward application of economics 101: make some action more expensive and people will do less of it. Which in this case is staying healthy. Need I add this idea is not only a Dumb idea but it is, like the budget, a regression.

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4 thoughts on “Quebec Budget: Packed with Regression and a Zombie

  1. Excellent post. But health tax regressiveness is worst – others are accepted part of tax mix, with positive environmental effects, in European social democracies – as long as there are progressive compensatory tax credits/rebates.

    Tuition is counterproductive if concern is accessibility. Discourages those most debt-wary, ie. working and lower classes. Higher price only means middle and up place more value on it. Net: more middle and upper go to uni, less lower. Higher overall participation rate, hiding lower participation of lower classes (see Australia, UK).

    Zombie, being so stupid, and probably illegal, wonder if will ever come to pass, in reality.

  2. Pingback: The Progressive Economics Forum » Quebec Tax Changes

  3. Hello Travis, we have met on the PEF blog I think. I wanted to ask you a question concerning the budget – great analysis by the way –
    A large part of the justification for shifting the tax base lies in the “empirical” research on the macroeconomic effects of tax structures on growth. This study by the OECD seems to be the reference for this argument, do you know if it or more generally the position adopted has been criticized?
    http://econpapers.repec.org/paper/oececoaaa/643-en.htm
    I was on a one on one debate on radio-canada’s Desautels with one of Bachands 4 economists, and when I questioned this as debatable research he kinda freaked out, so it seems a sensitive spot. Any references or musings are welcome.

  4. Hi Eric,

    A couple of things:

    First any economists pushing the OECD study as proof that changing the tax structure in Quebec WILL increase growth is a fraud. I know that sounds harsh but at best the study, on the face of it, suggest that tax structure (moving from taxes on Corporations towards consumption and residential taxes) is positively correlated in the average of 22 countries with slightly higher growth. So all that can be really claimed for this study is that it suggests that changing the tax structure MIGHT SLIGHTLY increase growth in Quebec. Local variables could swamp the effects of changing the tax structure. The authors explicitly acknowledge this in their conclusion when they write:

    “Two caveats apply when drawing policy conclusions from the analysis in this paper: …. Secondly, any empirical insight generated
    from cross-country macro data only reveals a picture that is true on average. Under specific circumstances in specific country cases, there may be reasons to expect deviations from the general patterns presented here, and to assume different effects of certain tax instruments. Such cases could arise, for example, where
    countries already rely very heavily on one of the tax instruments identified here, so as to make them significant outliers from the sample average. A closer look at the specific situation of a given country is therefore needed before making policy recommendations on the basis of the empirical analysis presented here. For most cases, however, tax reforms towards property and consumption taxes, and especially away from corporate taxes, are likely to enhance the prospects for economic growth.”

    The direct link to the pdf is here:

    http://www.oecdilibrary.org/docserver/download/fulltext/5kzc0ms9f6kb.pdf?expires=1270585099&id=0000&accname=UNIVERSITE+LAVAL&checksum=6EFDDA76BA9970D531858A29D5DE761C

    Second, the paper has nothing to say about the use of tax credits to offset an increase in the use of regressive taxes. This is where the budget fails. Yes for the very worst off in the income distribution it is progressive but after the minimum wage threshold it is regressive. And in the case of single unattached individuals just bizarrely regressive. There is nothing in the OECD study that justifies this in general or in particular.

    See my latest post: http://www.oecdilibrary.org/docserver/download/fulltext/5kzc0ms9f6kb.pdf?expires=1270585099&id=0000&accname=UNIVERSITE+LAVAL&checksum=6EFDDA76BA9970D531858A29D5DE761C

    Third, the paper is quite clear that it is not making any claims with respect to the SIZE of government only the tax structure.

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