Quebec Budget Take 2: More Regressive than Progressive

In my last post on the Quebec Budget I was in error when calculating the threshold at which the budget became regressive for the working poor. Specifically I set the threshold two low. Instead of 25,000$ for a working family of four it should have been set at 30,345.

Also I should have included a definition of working poor. While most poverty measures are considerably higher I will define working poor as anyone earning the minimum wage or less. In Quebec the minimum wage is around 18,000$. Thus a family of four with two working adults making $36,000 or less is defined here as working poor.

Also there are two issues here: the degree of progressiveness in taxation and the degree of poverty alleviation or (cash transfers). The first is metric of who pays and how much as a share of their income and the second is how much is redistributed. Consumption taxes such as gasoline and sales taxes, user fees, and health premiums are examples of regressive taxes. The regressiveness of these tax measures can be partially, totally, or more than offset by redistribution in terms of transfers (cash or tax credits). Moreover as my initial post noted the gasoline tax will presumably have beneficial externalities if and only if it drives down gasoline consumption and or increases public transit efficiency and infrastructure.

Ok so enough with the preamble: The Quebec budget is both progressive and regressive for the working poor and it almost entirely comes down to the health premium and the fact that it is not a function of income accept at the lowest income levels where the 200$ premium will not be charged. If you click on the PDFQuebec Budget you will see that I have reproduced table 36 and 38 of the budget document with two estimates included: for a family of four with two working adults @ 31,000$ a year and for a single working individual @ 15,000$ a year (both in bold).

One of things that jumps out is just how sneaky the government was in using 10,000$ wage increments. For a family of two it made it look as though it was only @ 40,000$ the health premium kicked-in and for a single individual @ 20,000. But as table 30 of the original budget document indicates the health premium kicks in 30,345 for a family of four and just under 15,000$ for a single individual.

If we then do the workout for as I have done in the estimates made in the PDFQuebec Budget”> it becomes clear that for working families making below the 30,000 threshold the budget is seemingly mildly progressive to the tune of 145$. But a family of four making 31,000$ is made 155$ worse off. So what is happening here is that the working poor are subsidising other members of the working poor. That is an odd way of defining a budget as progressive and to say the least a very odd definition of redistribution. Single poor people are even worse off. A single individual making 15,000$ a year is made 83$ worse off and @10,000$ a year 149$ better off.

The other sneaky thing in the budget tables is that they divide the Solidarity Tax Credit (QSTC) by the number of taxpayers not by the number of individuals in the house. To see why this matters consider the column “compensation per individual.” So a family of four below just below the $30,345 cut off will be made only 37$ better-off per individual member of the household.

But the real point is this the budget is regressive for some members of the working poor and progressive for others. At this is even more the case if one factors in the hydro increases which the minister claims will be offset for poor households via the QSTC. Both the scheduled and then budget + increases to hydro amounts to 70$ a year for an average household. so that means the model family of four at the just below the $30,345 cut off will see only be 80$ better off or 6.66$ a month better off.

Now I am not an expert on poverty but I do know the 6.66 a month, less than 2$ per household member, is hardly a poverty alleviator. Moreover the QSTC is not inflation indexed until 2013 so we can claw-back another 6 to 9% in terms of real purchasing power. That too goes against the claim made in the budget that the Quebec government is maintaining the income of poor quebecoise.