Text signed by Michel Leblanc, President and Chief Executive Officer of the Board of Trade of Metropolitan Montreal and published in The Gazette, Le Journal de Montréal, Le Journal de Québec and ledevoir.com.
September 28, 2012
Excessive taxation will derail the economy of Montréal and Quebec
We can no longer count the number of critics of the major tax increase planned by the Government of Quebec. Quebecers are already the most highly taxed people on the continent. Taxing them further would be disastrous for our economy.
Our members are worried. Entrepreneurs are hesitant, boards of directors are putting off decisions, international hiring has been put on hold and accounting and law firms are examining requests from clients who are planning to move their assets out of Quebec… That’s the reality.
Let’s take a quick look at the retroactive aspect of the proposed measures. It is quite simply immoral and improper. The Minister of Finance is fully aware that one of the basic requirements of developed economies is the predictability of tax laws and regulations. No citizen, no investor can make informed economic choices if the tax rules can change arbitrarily and retroactively.
Increasing taxes one year from now would be just as unacceptable. We have reached the point where an increase would bring tax rates above the important psychological threshold of 50%. And yet Quebecers are already the most taxed people in North America. This type of aggressive taxation on high income, dividends and capital gains would revive old perceptions that Quebec is hostile to private investment and success.
Above a certain threshold, increasing taxes is counterproductive
The government justifies these tax increases by appealing to the solidarity of high earners. Need we point out that the 4% of taxpayers who earn over $100,000 already account for 33% of tax revenue from individuals? Clearly solidarity is already alive and well in Quebec!
In adding the federal tax of 24.2% to the government’s proposed increases, combined federal and provincial tax would reach 52.2% starting at incomes of more than $130,000, and 55.2% above $250,000. Is it fair to take such a large part of a worker’s earnings away? More importantly, studies show that when the government gets too greedy, citizens reduce their availability to work or try to limit their tax burden. Whether or not we approve of this behaviour is of no consequence: by further taxing workers, we end up denying ourselves their contribution.
Raising taxes on dividends and capital gains will also have a dissuasive effect on savings and investment. In August, Ms. Marois said at our forum:“Small businesses are very important to the Quebec economy. After all, the flagships of tomorrow are the small businesses of today. The same goes for entrepreneurs.”
And yet, by increasing taxes on capital gains, we are discouraging risk taking and further weakening our entrepreneurial spirit. We are already lagging other Canadian provinces in this respect.
We are in danger of stifling businesses
Quebec is facing a major demographic crunch. To meet the needs of the population and to continue to grow richer as a society, local talent is not enough. In a context of stiff international competition to attract qualified labour, tax hikes will drive many people away. We need to stop kidding ourselves that our public services will compensate for this excessive taxation: high earners have access to quality services no matter where they choose to work.
These tax hikes will obviously weaken our head offices, where most key positions are well compensated. How many directors and vice presidents will be tempted to work from Toronto or Ottawa? How many talented people will be reluctant to join major Quebec corporations? For every head office that becomes more vulnerable, it is the city’s economy that will pay the price first, followed by the rest of Quebec.
Start the debate and let’s work together for a prosperous city
Ms. Marois and Mr. Marceau want to strengthen the Quebec economy ‒ of that we are sure. The fiscal framework and regulations are important tools to accomplish this. Properly calibrated, they encourage wealth creation. Poorly thought through, they reduce investment, demobilize workers and destroy the entrepreneurial spirit.
We are calling on the government to examine other avenues for balancing the budget. We are asking opposition parties to work to find solutions. We enjoin them to reject any tax measure that puts the economic growth of Quebec in peril.