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Surprise, your purchasing power increases!



The cost of living is one of the concerns of the hour, with good reason: the boom in inflation is eating away at household budgets. But in the end, has the purchasing power of Quebecers really eroded if we also consider the increase in their income?

Surprisingly, the answer is no for most categories of households, noted the Chair in Taxation and Public Finance at the University of Sherbrooke.

In an in-depth study on the subject, authors Frédérick Hallé-Rochon, Luc Godbout and Suzie St-Cerny come to surprising conclusions. They analyzed the evolution of income after taxes and social contributions of 14 types of Quebec households to conclude that for 11 of them, purchasing power has in fact increased in recent years, despite inflation.

Single people, single-parent families and seniors aged 70 and over, among others, come out on top.

Their disposable income, after taxes and inflation, has climbed between 1.1% and 3.3% since 2019, according to the study. On the other hand, people living in a couple are more often losers, but the losses are relatively modest (1% to 1.3%).

To do their analysis, the researchers compared the median incomes that 14 types of households will earn in 2023 – after the inflationary storm – with those they made in 2019, i.e. before the pandemic. Revenues have been deflated for inflation, so they are comparable year over year.

The authors also compared the evolution of purchasing power over the long term, i.e. since the year 2000.

Result: the median disposable income of single people will be around $37,222 in 2023, or 1.1% more than in 2019, once inflation is erased. For couples with children, this median net income will be $109,075, which is 1.3% lower than in 2019 (we are far from the carnage).

Among the favorable elements that have offset inflation, there are of course the salary increases, which are relatively significant in Quebec. In 2023, Desjardins Group forecasts that the increase will be around 4.1%, on average, after an increase of 4.2% in 2022 and 2.9% in 2021.

In addition to salary increases, we should mention the marked increase in the Canada workers benefit, like the more recent tax credit for seniors aged 70 and over.

In fact, a large number of households have actually suffered the impacts of the inflation boom in 2022, for example those who have had to change their accommodation.

And with the disappearance of the aid programs implemented during the pandemic, the shock was significant for some compared to 2020.

However, one-off government measures to neutralize the effects of inflation, such as checks from the Legault government, have partly compensated. And next year, the indexing of government parameters to inflation (tax tables, pension plan, etc.), to which must be added salary increases and tax measures, particularly for seniors, will do more than offsetting the rise in inflation, on average.

According to Luc Godbout, there has been a certain swelling of the problem. “The effect of inflation may have been exacerbated by media coverage (vox pop, gas prices, etc.). In many cases, one-off measures have entirely or significantly offset the rise in the cost of living,” says Mr. Godbout.

To these one-off measures will be added the significant tax cut promised by the CAQ government in 2023 (the study estimated its impacts for the 14 typical households, but the data in this column are all before the tax cut).

One thing is certain, in the long term, the median household has seen its purchasing power increase significantly, according to the study. For example, the real growth – i.e. after inflation – was 64% for single-parent families between 2000 and 2019. It must be said that these households have been particularly helped by the governments of Quebec in recent years.

Other winners: single people (+43%) and couples with children (+40%).

The improvement over the past 20 years has not been linear, notes Luc Godbout. Between 2007 and 2012, purchasing power almost stagnated in Quebec, in the context of the financial crisis. It recovered thereafter, with the favorable effects that we see in the long term.

Luc Godbout agrees that the period is currently more difficult for homeownership. But to those who complain that needs are greater today than 25 or 40 years ago, he replies that these needs have above all changed.

Yes, there are cell phone expenses, but the long distance charges have disappeared. And today, most households, regardless of their social class, afford a car or a regular trip to the South, which could not be done in the 1970s or 1980s, for example.

Confronting, right?

To know more :

Corrigendum, Churchill Falls

In my column on Churchill Falls, I wrote that the cost of two recent transactions gave a market price ranging between $4650 and $4838 per megawatt. It should have been written per kilowatt, of course. Mea culpa.

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