The Anatomy of a Middle Class Shakedown: Quebec Budget

In my last post on the Quebec budget I focussed in the regressiveness of the of the 2010-1011 budget vis-a-vis working poor families. There it was demonstrated that the budget was regressive in that some working poor families and individuals would actually face an increase in their taxes even after the Orwellian named Quebec Solidarity Tax Credit (QSTC) was taken into account. Today I want to focus on the regressive nature of the budget as it applies to the middle class.

One of the striking things about the tax increases in the last budget is the degree to which (for those families above a minimum wage income) the budget is progressive to the 60,000$. It is progressive in the sense that as income increases so too does the percentage of new taxes as a share of income. However, after 60,000 the new taxes go regressive with those earning above 60,000 paying a smaller amount of taxes as a share of their income. As the graph clearly shows, a family of four with an income of 60,000 will pay almost 1% more tax as a share of their income whereas a family with an income of 125,000 will pay 0.6% more tax as a share of their income.

The reason for this is explained by three factors. First almost all the taxes announced were regressive, that is, individuals pay the same rate regardless of income. Second, the 200$ health premium is not phased in. Third, nor is there a smooth phase out of progressive tax credits and transfers. The result is, well, the graph below.

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(Click on image to enlarge)

For single individuals the situation is even more weird. As the graph below illustrates the budget re-enforces what can only be described as an economic basket case when it comes to taxing single individuals in Quebec. Between 10,000 and 15,000, thanks to the QSTC the budget is progressive. But because of its ham fisted implementation and the three points outlined above the taxes are regressive from 15,000 to 40,000. The result is that those earning 40,000 will pay less taxes as a share of their income than someone making less than minimum wage! Then the trend goes progressive between 40 and 50,000. At which point the tax trend goes permanently regressive with someone making 125,000 a year paying a lower percent of the new taxes as a share of income than someone making 50,000.

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This budget is what many economists have called an adult budget and an efficient budget. Professionals in illegal lines would probably characterise this budget as an efficient shakedown.

As is by now well known one of the stories of globalisation is a polarizing of income with those in the top of the income distribution pulling away from the middle class. In turn, the top half of the middle class has been doing quite well (a post on that later) while the bottom half of the middle class has been subjected to stagnant or decreasing incomes. What this budget does is reinforce the in-egalitarian distribution of market incomes.

To be clear the plaint here is not that raising taxes is necessarily a bad thing: quality public services cost money. The question here is over the distribution of the tax burden. By refusing to use the progressive income tax system and instead rely on a hodge-podge of user fees and consumption taxes the government has chosen to let those towards the top of the income distribution shoulder a smaller percent of the burden.

This is tax regression in action, and if not checked it will likely become an important aspect of the story of how Quebec became much less equal place live. For the economists who lauded the budget, most of which it should be mentioned earn over $75,000 a year, I suppose this is just the price of efficiency.
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Note: data is taken from budget tables 36 and 38. Impacts were estimated using budget methodology for individuals at 15,000 and families at the 31,000 levels. A hydro increase of 58$ was added to the tax increases. The budget numbers do not include the proposed 25$ per medical visit fee.

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.

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.