Empirical research and history provide evidence that high marginal tax rates and uncompetitive tax policies can hurt a jurisdiction’s economic performance. This is because individuals and businesses respond by working, saving, and investing less, and by not hiring or expanding their activities. High personal and corporate income tax rates can also cause workers and capital to move to other jurisdictions with lower tax rates.
Quebec’s tax system—particularly with respect to personal income taxes—is decidedly uncompetitive within Canada and more broadly North America. This has contributed to its relatively poor economic performance across a range of indicators, including one of the lowest levels of real GDP per capita growth among the ten provinces over the past ten years.
The Quebec government has recently created the Quebec Taxation Review Committee to evaluate the provincial tax system and make recommendations on how to improve its competitiveness. The recommendations are expected in advance of the 2015 budget.
If the government wants to improve Quebec’s economic prospects, it should move ahead with changes to its tax system focused on increasing its competitiveness. The province’s personal income tax rates and the income thresholds at which they apply ought to be a top priority.
