Though Premier Philippe Couillard has wrestled the provincial deficit to the ground, he has rejected calls for meaningful relief for the continent’s most overburdened taxpayers.Jacques Boissinot/The Canadian Press
When Caisse de dépôt et placement du Québec head Michael Sabia this week sought to defend the pension-fund manager's plan to build and run a $5.9-billion light-rail transit system in Montreal, he cited the city's tech sector as the inspiration for his unconventional proposal.
From Hopper, which just clinched $61-million (U.S.) in venture capital for its airfare-prediction app, to the University of Montreal artificial-intelligence lab that's partnering with Google to create an AI "supercluster" in the city, Mr. Sabia insisted Montreal, "is laying the foundation for its renewal thanks to a new generation of entrepreneurs and researchers who think and act differently."
Too bad the innovation bug hasn't infected the Quebec government. Though Premier Philippe Couillard has wrestled the provincial deficit to the ground, he has rejected calls for meaningful relief for the continent's most overburdened taxpayers. No thinking or acting differently for him.
How this squares with the aim of making Montreal a hotbed of tech innovation is unclear. While the city has produced some notable Canadian tech players – from point-of-sale software developer Lightspeed to multimedia entertainment phenom Moment Factory – few people would call it a tech hub. Attempts to change that have largely focused on tax credits to encourage startups and fostering a local venture-capital industry, led in part by the Caisse.
Little attention has been paid, however, to the role an onerous personal tax burden plays in attracting and retaining technology professionals. No technology sector can thrive without luring talent from elsewhere, no matter how creative and tech-savvy the locals are. And personal taxes are no minor detail when it comes to creating the climate needed to attract tech workers from sunnier destinations.
Yet, according to a new University of Sherbrooke study, all taxes (income, payroll, property and sales) combined amounted to 37.6 per cent of Quebec's gross domestic product in 2015, compared with 29.7 per cent of GDP in the rest of Canada. This leaves Quebeckers only slightly less taxed than Norwegians. Only Quebec is not competing with Norway for tech talent.
The high tax burden may help explain why Quebec's share of Canada's top income earners has been in constant decline in recent decades. While income inequality is a serious concern, the solution hardly lies in punishing highly skilled individuals for maximizing their earnings potential – especially when they already pay the lion's share of all taxes collected in the province. Yet, Quebec's tax take keeps going up.
According to Statistics Canada, Quebec was home to 15 per cent of Canada's top 1 per cent of tax filers in 2014, well below its 23.4-per-cent share of the population. A new study by the Institut de la statistique du Québec digs deeper into the data to reveal that Quebec's share of the top 10 per cent of Canadian earners fell to 13.2 per cent in 2014 from 21.2 per cent in 1976. Ontario's share rose to 42.5 per cent, while Western Canada's share was up to 39.7 per cent.
Though Toronto's rise as Canada's head-office capital and Western Canada's resource boom are the main reasons Ontario and Alberta have higher concentrations of high-income earners than Quebec, any headhunter will tell you higher taxes make it harder to lure talent to Montreal.
And venture capital goes where the talent is. In 2016, Quebec accounted for a decent 20 per cent of the $1.7-billion in venture-capital funding obtained by Canadian-based firms. But that was barely a third of Ontario's 56-per-cent share, according to PwC Money Tree. Quebec policy makers will need to "think and act differently" in order to raise the province's future share.
At 48 per cent, Quebec's net debt remains by far the highest of any province except Newfoundland. This is often cited as an obstacle to lowering taxes in the province. The perception that public services suffered as Mr. Couillard sought to strangle the deficit has also left the government facing political pressure to inject more money into health and education. Hence, the only tax relief on the horizon is an early abolition of the modest "health contribution" that the Couillard government had promised to phase out by 2019.
It's better than zero. But it won't make Montreal a Silicon Valley Nord.