March 2011

2011-2012 Quebec Budget
The Age of Austerity

The Quebec government laid it on the line two years ago:  the next few years will be a time of austerity for Quebec taxpayers. If we had any doubts about that, the 2011-2012 budget has put them to rest.

It’s hard to believe that just a few short years ago our governments’ budgets featured tax cuts! The one tabled last Thursday by Quebec Finance Minister Raymond Bachand confirms that we are now well and truly in a post-crisis environment. While it does contain economic measures aimed at stimulating growth, notably the Northern Plan, its priority is clearly to seek fiscal solutions to the government’s budgetary problems, primarily:

·         controlling public finances;

·         funding pensions; and

·         funding universities.

Let’s take a closer look at what this means for our pocketbooks.

Controlling public finances

They may be forgotten, but the measures announced last year haven’t gone away:

·         increase of 1¢ per year in the price of a litre of gas;

·         increase in the health contribution to $100 in 2011 and $200 in 2012;

·         additional 1% increase in the provincial sales tax, which will rise to 9.5% in 2012.

The latest budget doesn’t add any new taxes – but don’t let that fool you:  if you have two children and household income in the $75,000 range, you’ll be $1,000 poorer in 2012. And if you buy a $30,000 new car, that by itself will cost you close to $650 more.

When announcing these measures, Mr. Bachand noted that this contribution to deficit elimination by the people of Quebec would be accompanied by an even larger contribution on the part of the government itself in the form of reductions in spending. Since spending is up again, balancing the budget in two years remains a goal that might be achievable, but is unquestionably ambitious.

Funding pensions

We’ve all heard the news:  if we don’t act now, the Quebecers’ nest egg known as the Quebec Pension Plan will be gone in 30 years. This budget tackles the problem on two fronts:  what goes in and what comes out:

·         on the inflow side, the tap is turned on:  employee and employer contribution rates are going to rise by 0.15% per year from 2012 to 2018, after which the increases will be based on an automatic rate adjustment mechanism; at that point, if you earn $40,000 a year, for example, you will be contributing $200 more per year to the QPP than you do now;

·         on the outflow side, the tap is turned off:  the “actuarial penalties” paid by workers who start drawing their QPP pensions at age 60 are increasing, as are the pensions of people who don’t retire until after age 65; and to provide us with even more incentive to keep working longer, there will be a tax credit of up to $1,500 per year for people over 65 who still have earned income.

Furthermore, in between the two, the government plans to implement a new voluntary retirement savings plan, the VRSP; the framework of this plan is still somewhat nebulous, but it seems to resemble a kind of group RRSP that employers would be required to set up.

It’s interesting to note that Quebec is far from being the only government facing a pension plan crisis. The French daily La Tribune reported last Friday that France, where the retirement age is 62, is facing an even more serious problem. What solutions is the OECD considering for that country? Please refer to the three points above!

Funding universities

Students are finding this pill hard to swallow, but it seems that the case is nearly closed:

·         a substantial increase in university tuition fees – up to 75% over five years, if the government stays its course.

Financial assistance for low-income students will be beefed up, but for everyone else the increase will be stiff:  $325 more in the first year… and $1,625 more in year five.

It’s true that this increase will bring our tuition fees into line with what they would have been had they simply been indexed to inflation since 1968. Even so… if you have children in school, it might be time to redo your calculations, since $1,625 more per child per year is nothing to sneeze at, especially if you add in the other increases listed above. This measure will come into force in the fall of 2012.

Anything else?

In addition to these measures, the budget does contain some good news, specifically:

·         greater access to the refundable tax credit for informal caregivers;

·         introduction in 2012 of a purchase rebate program for “green” vehicles, to replace the current tax credit; the rebate will be based on the vehicle’s battery capacity;

·         for businesses, implementation of two funds to promote start-ups and business succession;

·         and last but not least, changes in the royalty regime for shale gas development.

The times, they are a-changin

This budget makes it amply clear that we have entered a new age where every citizen can expect to have to contribute more to government finances and be forced to revise their personal financial projections accordingly.

Without putting too fine a point on it… this just might be a good time for a little chat with your financial services professional.