Inflation sends Quebec government revenue soaring as CAQ promises income tax cuts

While inflation may be hurting ordinary Quebecers’ pocketbooks, it’s done the opposite for a provincial government that has seen its projected deficit shrink by billions of dollars, according to a report released Monday ahead of the fall election campaign.

The government’s projected finances are “plausible” despite global economic uncertainty that threatens to darken the rosy picture, said auditor general Guylaine Leclerc, who was tasked with reviewing a pre-election financial report by Quebec’s finance minister.

Inflation, Leclerc said, “has a lot to do” with filling the government coffers, thanks to increased tax revenue from salaries and sales tax.

“At the level of the (fiscal) year 2022-23, at the accounting level, we forecast a surplus,” she told a Quebec City news conference.

Finance Minister Eric Girard’s report, also released Monday, showed that Quebec would finish the current fiscal year with an operating surplus of $1.7 billion — the government had predicted a deficit of roughly $3 billion in March’s budget. However, Quebec law states that certain payments must be made toward reducing the provincial debt; therefore, the government estimates it will finish the fiscal year with a deficit of $729 million.

In a news conference following Leclerc’s report, Girard said Quebec’s economy has continued to outperform expectations, and he promised to cut personal income taxes if re-elected on Oct. 3. He said Quebecers have a high tax burden and pay four to five per cent more tax than other Canadians do, on average.

“What we would like to do in a second mandate would be to reduce the gap between the personal income tax burden of Quebecers versus the rest of North America or Canada,” he said.

Girard said he did not anticipate a recession, but rather a slowdown in growth, down to 1.7 per cent in 2023 from 3.4 per cent in 2022. Inflation is estimated 6.5 per cent for 2022 and 3.2 per cent the following year, he added.

Revenue from personal income tax — the state’s largest source of revenue — is expected to jump 5.2 per cent from 2021-22 to 2022-23. Revenue from consumption tax will total $27.3 billion in 2022-23, up 10.8 per cent from 2021-2022.