(Quebec) Quebec’s decision to imitate Ottawa by increasing the taxation of capital gains could melt the historic deficit by $1 billion, according to the Minister of Finance. Eric Girard describes the federal government’s choice as an “interesting compromise.”
Unsurprisingly, Minister Eric Girard had to defend Tuesday, during the study of his ministry’s appropriations, the decision of the Legault government to adjust the Quebec tax system to harmonize it with the measures proposed in the federal budget, including increase in the capital gains inclusion rate.
This choice, which was notably denounced by the opposition and manufacturing companies, was confirmed by the government in the days following the tabling of the Freeland budget last week.1. “We knew that people wanted to know quickly if we were going to harmonize, we gave ourselves 72 hours,” explained the minister, pressed with questions by Liberal MP Frédéric Beauchemin.
Eric Girard assured that an internal analysis was carried out to measure the effects of such a measure, which will bring him $3 billion in five years, according to his estimates. “(We did) an analysis on the impacts (on) marginal investments (…), there is no impact”, underlined the minister, who also argued that the decision was taken to avoid “a complexity in the Quebec tax system”.
Furthermore, Mr. Girard specified that the tax on capital gains will allow Quebec to collect more during the first years, which will have an effect on the budget deficit.
“The 3 billion is not distributed equally (over time) because we keep the old rate until June 25. The federal government has planned significant inflows of funds in the current year, which means that for us, in fact, the deficit which was forecast at 11 billion risks being around 10 billion,” explained Eric Girard in response to the MP for Marguerite-Bourgeoys.
The effects will be “higher in the first year and lower for the second and third years,” continued Mr. Girard. Increasing the tax on capital gains could bring the Quebec state around 600 to 700 million annually from years 4 and 5, added the minister.
Capital gain is income from the sale of property that has increased in value such as a second home, a cottage, a plex or shares (the primary residence is excluded for tax purposes). Currently, we pay tax, both federally and provincially, on half of capital gains. This is preferential treatment compared to that applied to work income.
Under the federal budget tabled Tuesday, as of June 25, the inclusion rate – the portion of capital gains that is taxable – will increase from half (50%) to two-thirds (66.7%) for all which exceeds $250,000. Ottawa estimates that the measure will affect 40,000 Canadians. The Minister of Economy and Energy, Pierre Fitzgibbon, specified last week that this will affect 10,000 people in Quebec.
An “interesting compromise”
Eric Girard said Tuesday that Ottawa’s decision is an “interesting compromise” while “several hypotheses” were circulating as to how the Trudeau government would seek new revenue. The scenario of increasing the portion of taxable capital gains to 75% was part of “the noise” he was hearing, he revealed.
“My fear was that the federal government (would go) up to 75%, which it did not do,” he rejoiced. Mr. Girard did not specify specifically why such a rate worried him.
During the 2012 elections, the Coalition Avenir Québec promised to increase the taxation of capital gains, by increasing the inclusion rate from 50% to 75%.
With Tommy Chouinard and Charles Lecavalier, The Press
reference: www.lapresse.ca