The Canadian province of Quebec held elections on April 7th, only 18 months after the last ones. Unsurprisingly, the separatist Parti Quebecois (PQ) miserably failed to stay in power under the struggling economy, losing by a landslide. Premier Pauline Marois even lost her own seat by nearly 800 votes. As Bill Clinton famously said, “C’est l’économie, niaiseuse.” Or, for Quebecois with a better mastery of English, “It’s the economy, stupid.”
To voters, the PQ seemed to want to push Quebec’s economy further down than the Liberals (PLQ) had done in their previous nine years in power. In hopes of eliminating the deficit, they created a new income tax bracket of 25.75% (previously 24%), raised taxes on cigarettes and alcohol, and by make the health tax progressive despite previous promises to abolish it.
As an economist, Finance Minister Nicolas Marceau should have known a thing or two about the power of incentives. Taxes are a disincentive for whatever product they are levied on, be it income or cigarettes. Raising taxes almost always results in lower consumption and production.
As a result, PQ’s tax hikes didn’t yield the expected revenues, and Quebec still has a $2.5 billion deficit instead of a balanced budget as promised. This gloomy outlook was met with a frown from Fitch ratings, which gave Quebec’s credit score a negative grading. Despite Marois’ dismissal of the warning, it must be taken seriously.