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Quebec Finance Minister Nicolas Marceau is expected to backtrack on his decision to make tax increases retroactive. has responds to reporters questions over a tax raise to wealthier people before entering a caucus meeting at the legislature Wednesday, September 26, 2012 in Quebec City. THE CANADIAN PRESS/Jacques BoissinotJACQUES BOISSINOT/The Canadian Press

The Parti Quebecois government is backing down on its plan to abolish the $200 a year health tax and retroactively increase taxes on the rich.

PQ Finance Minister Nicolas Marceau announced that a progressive health tax will be adopted instead requiring wealthier taxpayers to pay more. Moreover, a new tax bracket of 25.75 per cent on individual incomes higher than $100,000 a year will be introduced in 2013, a 1.75-per cent increase over the current rate.

All of the measures will take effect next year meaning that Quebeckers will be required to pay the current $200 health tax for 2012 when they file their income tax next year.

Furthermore, Mr. Marceau has also abandoned a plan to retroactively increase the capital gains tax as well as the proposal to change the dividend tax rate.

"Given our minority government position...we adopted a compromise of a responsible government that respects the spirit of our election promise," Mr. Marceau said.

The PQ government was under enormous pressure from the business community to back down on its plan to abolish the health tax and make up the difference by retroactively increasing the tax burden on higher income earners.

Under the government proposal those earning less than $20,000 a year will pay no health tax. It will increase gradually up to an annual income of $42,000. The tax will remain the same for those earning between $42,000 to $130,000 and then increase gradually up to $1,000 for those earning $150,000 a year and over.

The new health tax proposal would generate $691-million a year in revenue and the new tax rate another $322-million that will compensate the $1-billion generated by the current health tax.