The Parti Québécois is moving to hike taxes on higher-income earners in the province – a bold move that means Quebeckers who make more than $130,000 would pay more into government coffers this year.
The PQ's decision to act quickly on a controversial campaign pledge – and the government's intention to apply it retroactively to taxpayers – has set up a showdown for a minority government that is only days old.
While the opposition quickly denounced the plan as a cash grab, both the Liberals and Coalition Avenir Québec said they did not want another trip to the polls if the legislation was put to a confidence vote.
The PQ, which is seeking to recoup the $850-million it will lose annually after repealing the province's unpopular health tax, said it will introduce two new tax brackets immediately – for incomes over $130,000 and $250,000 – but did not give details as to what the new rates would be.
"We have yet to determine what the rate will be," said Shirley Bishop, the PQ's director of communications. "That will be announced later this fall. It will be paid when people file their provincial tax returns next year."
The PQ government said it is also considering bringing in a higher tax on dividends and capital gains.
"We are working on various scenarios and we are open to discussions with the opposition parties. We haven't lost sight of the fact that we are a minority government," Ms. Bishop said.
Former Liberal finance minister Raymond Bachand lashed out at the tax increases. "A retroactive tax hike is odious," he said. "If you are a millionaire, it probably won't be that much of a problem. But if you make $140,000 and you are the sole income earner of your family, it will likely be problematic. You can't change the rules in the middle of the game. It makes no sense."
Opposition parties say the move will also harm the business climate in the province.
Ms. Bishop said that the opposition will be hard-pressed to want to defeat the government on an issue that will benefit five million Quebeckers at the expense of roughly 140,000 higher-income earners.
While the new tax rates have yet to be determined, the PQ said during the election campaign that it would consider a 4-per-cent increase, to 28 per cent, on taxable income above $130,000. Another 3-per-cent increase would be slapped on income above $250,000, bringing the provincial tax rate to 31 per cent for that group of income earners. Combined with federal tax rates, Quebec's higher-income earners will remain the most heavily taxed in the country.
Finance Minister Nicolas Marceau was unavailable for comment on Monday. But Ms. Bishop said that the minister will begin explaining the government`s fiscal policy on Tuesday.
For the business community, the impact could be devastating. Higher-income earners represent 2.5 per cent of taxpayers, yet account for 26 per cent of all the taxes paid in the province, according to Yves-Thomas Dorval, president of the Conseil du Patronat du Québec, the province's main lobby for big business.
"When the marginal tax rate exceeds 50 per cent, you will get a reaction and that is no good for Quebec's economy. And to do it retroactively is adding insult to injury," Mr. Dorval said. "Quebeckers are already the most burdened taxpayers in North America. Either they will work less, or they will move elsewhere."
Quebec Ministry of Finance figures show that in 2010, a little more than 102,000 people in Quebec earned between $130,000 and $250,000 a year. Another 38,000 earned more than $250,000 a year.
According to Mr. Dorval, the move will not only hurt CEOs but skilled professionals as well, such as doctors, engineers and other specialists who are highly mobile. "So if they leave, Quebec is going to have an even bigger fiscal problem in the midterm," he said.
The opposition parties are already gearing up for a fight when the National Assembly resumes sitting at the end of October or early November. They denounced the measure, insisting that the government must look at all the options and carefully weigh the effects of a tax increase.
Mr. Bachand said the measure has pushed him one step closer to formally announcing his candidacy to replace former leader Jean Charest. In a telephone interview, he said he was waiting for the rules of the leadership race to be adopted later next month before jumping in.
Until the leadership race is held, the Liberals will be in no position to defeat the government. But Mr. Bachand said that shouldn't stop the Liberal caucus from mounting an offensive against the PQ's fiscal policies, which he claimed will drive highly trained Quebeckers out of the province.
"Opposition parties can ask for a non-confidence vote, but we haven't discussed it yet," Mr. Bachand said. "None of the parties want an election so quickly. They are all broke. The idea would be for them [the PQ] to retreat. … There is a limit to what we can let them do."
The CAQ has also defended the need to abolish the health tax, but the party insisted that raising new taxes was not the way to compensate for the loss in revenue. "They are grabbing a billion dollars from the pockets of the middle class, the rich and the less affluent. There are other ways to balance the budget," said CAQ member François Bonnardel.
Like the Liberals, the CAQ would be reluctant to defeat the government on the issue but will press hard for talks to examine other means of generating new revenue to compensate for the elimination of the health tax.