Q. What stands out to you about the three financial frameworks that have been presented so far?
Luc Godbout : Before making a critical comment on each of them, I would perhaps like to recall what this exercise consists of. A financial framework, what it seeks to do is to compare itself to the status quo, to the pre-election report, and say: here are the changes we want to make. So that allows a comparison between the proposals of each of the parties. Over the years it got better. Overall well done.
For Québec solidaire (QS), this is the first year that they have presented it over five years. It’s positive, because usually they presented only one year. So it’s a bit like the flower.
But if not, is it feasible to seek nearly 37 billion over four years, or nearly 10 billion per year in new revenue? It would be quite a challenge. So the financial framework of Québec solidaire is perhaps a bit ambitious, and I don’t think they will hide it, they will agree. But there is still a difficulty.
On the liberal side, the criticism would be that, without explanation, the “COVID measures” provisions for this year and the provisions for economic risk and recovery, or two billion a year for five years, they disappear in their financial framework. They are no longer there, despite the higher deficit. That means that if there is a recession, there is no room for maneuver to deal with it.
On the side of the financial framework of the Coalition avenir Québec (CAQ), I would make the same criticism as the one I made to the outgoing Minister of Finance in 2018, the liberal Carlos Leitão… It is his ministry that prepares the pre-election report, but two weeks later they come in saying that they are going to have higher economic growth than what is written in the pre-election report, because that gives additional revenue. It is sure that it is a criticism that one can formulate.
That said, it is still well indicated in their financial framework; there’s a separate line that shows what the increased revenue is, so you can easily subtract it to calculate the deficit without increased economic growth.
The Parti Québécois is due to present its financial framework on Tuesday, while that of the Conservative Party of Quebec is expected during the week.
Q. Only one party plans to balance the budget fairly quickly, it’s Québec solidaire.
Yes, but they are stopping payments to the Generations Fund. If they had maintained the payments, they would have the same deficits as those estimated in the pre-election report. But it is the only party, among the three, which does not worsen the deficits for the next two or three years.
Q. Should we completely rethink the Generations Fund? Currently, the CAQ proposes to get 40% to finance a tax cut, QS would stop the payments and the PLQ would draw a billion for the energy transition.
It is normal to discuss the Generations Fund because the targets that were set in the act at the outset, around 2007, will be achieved during the next mandate. So it’s normal to want to discuss it, but is an election campaign the right time? This I do not know.
Less than a year ago, a panel of experts spoke out and the people consulted said that it had to be maintained, that new targets had to be found and that a horizon of approximately 10 years to get below the average indebtedness of the Canadian provinces. And once we get to that, it might be time to see what we can do with the installments.
Q. I also want to hear from you about the commitment of QSunveiled last week to tax estates that exceed $1 million. Is Quebec standing apart by not taxing estates?
We stand apart in two respects. We must remember that there was already a tax on inheritances in Canada and in Quebec. We started taxing capital gains in 1971 in Canada, the same year we stopped having inheritance tax in Canada as well. There is a link between the two.
If we look at the countries of the Organization for Economic Co-operation and Development (OECD), it is true that there is a majority which has an inheritance tax, but in these same countries, it does not happen nothing at death on capital gains. For example: if I bought shares of Apple in the 1980s, I have a huge capital gain, I die. In the United States, France, United Kingdom there will be no tax on this gain of my shares which have appreciated in value. There will be tax on my estate, but I will have avoided capital gains tax.
In Canada, one is part of a minority of countries where, at the time of death, immediately before dying, one is deemed to dispose of one’s property and to tax on all unrealized capital gains, with a few exceptions. This is a significant difference, which justifies why there is no inheritance tax.
We really stand out from other countries in theOECD. I think there are only 3 out of 36 that assume a disposition of assets upon death, like Canada.
Of course, if we decided to review the capital gain inclusion rate, we would make it even more effective. But it is not excluded either a tax on inheritance, it can exist. The question, which must be asked, is: which government should do it to minimize the distortions? Is it the federal government or the provincial government? Probably, to avoid all sorts of planning, the most central state would be best placed.
It should also be noted that this does not generate panaceas. But it is an additional tool for a government that wants to have more tax revenue.
Luc Godbout’s remarks were adapted from his interview with Economy zone to facilitate understanding.