Tax breaks give Quebecers ‘oxygen’ after two tough years of inflation

Finance minister’s economic update means that a bigger share of every Quebec taxpayer’s income will be taxed at a lower rate.

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Finance Minister Eric Girard’s recent economic update may not have included any cheques for Quebecers like last year, but it still gave taxpayers some much-needed relief at a time of stubbornly high inflation.

Tax bracket thresholds are going up by 5.08 per cent next year, as is the amount at which citizens start to pay income tax, Girard announced Tuesday. The increase is almost twice the estimated inflation rate for 2024, which is 2.71 per cent.

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This means that a bigger share of every Quebec taxpayer’s income will be taxed at a lower rate — resulting in savings of hundreds of dollars for some wage earners. In that sense, Girard is going farther than he is obliged to under provincial law, which requires the government to automatically index the tax system to the rate of inflation.

“The indexation rate exceeds the rate of inflation that’s projected for next year, so we’re getting a little bit of a break,” Mario Iacobacci, a partner in economic advisory with Deloitte Canada in Montreal, said in an interview. “People will not have to pay taxes on the portion of their wage increases that’s catching up with inflation. The intention of the tax system is not to tax people more just because their wages are catching up with inflation. You want to remove that impact.”

As of Jan. 1, the basic personal amount that is exempted from taxation in Quebec will increase from $17,183 to $18,056. This will result in a maximum of $122 a year in savings for most individuals.

What’s more, the maximum threshold for the first taxable income bracket — which is taxed at 14 per cent — will rise from $49,275 to $51,780, resulting in additional savings of as much as $125 a year.

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Somebody earning $50,000 can therefore expect to save as much as $247 in 2024.

Quebec’s tax structure has four different brackets.

The second bracket, which is taxed at 19 per cent, will now apply to income between $51,780 and $103,545, leading to maximum savings of $250 a year.

The upper threshold for the third bracket, which is taxed at 24 per cent, will now be $126,000 instead of $119,910. Any income earned above that point is taxed at 25.75 per cent.

“People will see the effect with every pay,” Iacobacci said. “It may not be much over 26 or 52 paycheques, but it’s still something. Everybody notices their net pay.”

On average, the indexation will represent $282 per taxpayer for 2024, Girard said Tuesday in Quebec City.

Indexing the personal income tax brackets will cost the government $1.8 billion per year, the finance ministry said. Indexing social assistance benefits will cost another $146 million.

The basic personal amount of a single person living on social assistance will rise from $8,700 to $9,144, an increase of $444 annually. There are currently 355,689 Quebec households on social assistance, 28,000 more than a year earlier.

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The basic family allowance per child, which is pegged to family income, will rise from a maximum of $2,782 to $2,923, an increase of $141 annually.

Although rising consumer prices have affected all Canadians, Quebecers have been hit especially hard. At 4.8 per cent in September, Quebec’s inflation rate was the highest in Canada, tied with Nova Scotia. The national average was 3.8 per cent.

“The situation is very difficult for Quebecers,” Girard told reporters Tuesday. “The government’s actions are designed to protect their purchasing power.”

Persistently high inflation means that even families where both adults work can sometimes struggle to make ends meet, said Sylvie De Bellefeuille, a lawyer and budget adviser at the non-profit consumer organization Option Consommateurs.

“People in difficulty are no longer just people on welfare,” De Bellefeuille said in an interview. “Nowadays, we even see some working families who are having trouble financially. The people who come to us for help these days have higher incomes than in the past.”

It’s the second straight year where the increase in the tax system’s parameters exceeds the forecast rate of inflation. Quebec raised the 2023 tax brackets by 6.44 per cent, the highest rate since the tax system began to be automatically indexed in 2002.

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Indexing the 2024 tax brackets by more than five per cent “will undoubtedly give people a little bit of oxygen, but let’s not forget that in the two previous years inflation was higher than the indexation rate,” said Luc Godbout, a professor at the Université de Sherbrooke’s department of taxation. “Indexation rates are based on what happened to inflation in the year ended Sept. 30. There’s always a lag between what we observe in terms of inflation and what’s reflected in the indexation rate.”

Inflation in Quebec “continues to be a major challenge,” National Bank of Canada economists Daren King and Matthieu Arseneau said in a note to clients published Tuesday.

The indexation “provides welcomed support to the lower end of the income spectrum, but the timing could add immediate inflationary pressures,” Laura Gu, an economist at Scotiabank, said in a note.

By comparison, Girard’s decision in March to cut the rate on the two lowest provincial tax brackets by one percentage point amounted to a combined reduction of $1.7 billion annually for 4.6 million taxpayers.

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Philip Authier of the Montreal Gazette contributed to this report.

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