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Is it too much, 3.5 billion in checks?

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The figure strikes the imagination: 3.5 billion dollars in checks to taxpayers, some of whom earn $100,000. What an electoral decision, say many Quebecers, who would have preferred to see the money invested in health or education, for example.

What do I think of it ? Yes and no, it’s electoral. And yes and no, it harms the policy of the Bank of Canada, which wants to break inflation by raising interest rates. And here’s why.

First, what is unanimous is that we must help the less fortunate to get through this difficult inflationary period. As you have seen, the grocery basket has risen sharply over the past year, by 11% on average. And for all expenses, inflation is 6.9%.

But what is a modest income? In its recent economic statement, the Trudeau government, which criticizes checks from Quebec, implicitly answered the question.

To help taxpayers heal the wounds of inflation, the economic statement will increase certain amounts for so-called modest taxpayers, whose income, for a single person, is set at less than $50,000 ($49,166).

This figure corresponds to the threshold at which singles no longer receive assistance to offset the GST on their purchases, known as the GST credit. The federal statement increased this amount granted to those under $50,000 by 50% in order to alleviate inflation.

For a single person, it is the equivalent of an additional check for $234, at most. The measure is non-recurring.

And what about the measure of the Legault government? Well, in Quebec, the group of taxpayers earning $50,000 or less – the so-called modest incomes – represents 4.6 million of the 6.5 million people who will benefit from checks of $400 to $600 from the Legault government.

And even, this group will receive nearly three quarters of the 3.5 billion dollars that the government of Quebec will allocate to it.

In short, most of the funds for the measure, more precisely 2.8 billion, will be allocated to people with low or modest incomes. The measure is therefore neither unjustified nor electoralist for the bulk of the funds paid.

Now there are the other taxpayers who will receive checks, generally for $400, that is, those who earn between $50,000 and $104,000. Quebec will therefore pay them a little over $700 million, in total.

Electoralist, this portion? Yes, definitely. The Legault government wanted to curry favor with the middle class, and it succeeded. Especially since he had already sent checks – for $500 – last spring.

Not very useful, the new checks? Probably for those earning over $70,000, in my opinion, especially couples with two incomes within those parameters. But very useful, on the other hand, for families with a single income of $70,000 and four mouths to feed.

What seems clear is that the sums that will be paid to taxpayers earning between $70,000 and $104,000 could have been used for other purposes, in education, health or debt repayment, for example. The catch is that the checks for this group of approximately 750,000 taxpayers will total only 300 million… less than 10% of the 3.5 billion.

Inflationists, checks? Indeed, giving back to taxpayers funds that can stimulate demand with their purchases – and therefore prices – is inflationary in nature and undermines the work of the Bank of Canada. Hence the importance of targeting the less fortunate.

But beware, to avoid the inflationary effect, the government must not spend this excess money otherwise, for example on education, health or road construction. Because public spending is practically as inflationary as the personal spending of taxpayers.

In short, in order not to be inflationary, the money should remain in the coffers of the State and be used to reduce the debt, essentially (or to eliminate the deficit, which amounts to the same thing).

Finally, for those who are worried about the finances of the Government of Quebec, know that the situation has greatly improved precisely because consumers have paid more in sales taxes, in particular because of the rise in prices. Checks are therefore not gifts, but the return of taxes and duties that taxpayers have paid in addition due to inflation, among other things.

Checks of $400 to $600 are an imperfect measure, however. It would have been preferable for the Legault government to modulate the checks according to the family situation, for example. And that it gradually reduce the $600 paid from an income of $50,000, an amount that could have fallen to $0 for an income of $70,000, for example.

Another element, prospective: if I were the Legault government, I would delay the tax cuts promised for the year 2023, knowing that these payments contribute to inflation and harm the efforts of the Bank of Canada (and the long-term economy).

For example, why not announce in the March 2023 budget that the tax cuts will begin not in January 2023, as planned, but in the fall of 2023, at a time when, in all likelihood, inflation will have fallen significantly?

Corrigendum

In my column “Quebec beats the predictions”, published on Wednesday, the table indicates that Quebec is at 7e rank of provinces for GDP per capita ($47,778), but the text speaks of 5e rank. It is indeed the 7e rank. Mea culpa.



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