Still Progressive and family friendly: evaluating Québec’s income tax policy

University of Sherbrooke economist and fiscal specialist Luc Godbout with Suzie St-Cerny and Michaël Robert-Angers has just published a timely research paper evaluating the net fiscal impact on households of Québec’s income tax system.Timely because, as discussed here be Armine Yalnizyan recent data from stats can shows that though globally income inequality has risen during the last recession, they have risen less in Québec then in most other provinces. Québec’s income tax system has certainly something to do with this. Godbout and cie have compared the net fiscal impact of Québec’s income tax system with G7 countries using data and methodology from the OECD. In the case of Canada, they used Ontario as a benchmark. (see table below)

A number of interesting findings for progressives are:

1. Québec continues to rely more than other jurisdictions on income tax as a policy tool to fund public expenses and to redistribute wealth. The weight of income taxes to GDP is higher in Québec then in the other G7 countries, 12,8% for Québec compared to the average 9% for the G7 and 11.4% for Canada.

2. But when one factors in the net fiscal impact of the province’s tax system on households, adding in various other taxes and payments (except sales tax) and subtracting various income transfers from the state to households, then the weight of our income tax system is actually below the G7 average, for households at all income level brackets (the study examined the case of 67%, 100%, 167% and 200% of the average income).  In Godbout et al. word’s we have a “competitive” fiscal system.

3. Godbout also compared the progressiveness of Québec’s tax system to other G7 jurisdictions and found that among G7 nations, Québec has the most progressive income tax system in almost all scenarios. The global progressiveness measured as the spread between the taxes paid by households at 67% of average income and those at 300% of average income varies between 15 and 55% depending on household composition.

4. Godbout also compared progressiveness in terms of household type and found that Québec’s income tax system favors families and single parent households more than in other G7 countries. When income level progressiveness and family progressiveness are combined it is found that Québec’s tax system most actively supports the more vulnerable families, single parent low income earners, favors single parent over two parent households and favors families over couples and singles without children. Only families with children at upper income levels are not favored by the progressiveness of the tax system.

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It appears upon reading the report that Québec’s highly progressive income tax system attains the dual policy objectives of supporting families with children, of helping more vulnerable single parent families (mostly women) all the while redistributing income. It is happily surprising to see that the net impact of this income tax policy is comparable to the mean impact of G7 countries who’s tax systems are not either as supportive to families are as progressive in terms of income redistribution.

We might by the “most taxed workforce in North America. as right wing pundits and their think tank economists repeat ad nauseum, but when compared to G7 nations globally our tax system: “ realizes the feat of remaining competitive by staying under the average of G7 nations …. all the while offering the strongest progressiveness as incomes rise combined with a solid recognition of family situations.” (my translation).