March 11th, 2021
Protecting future generations: Innovative tax solutions to reduce public debt levels exacerbated by the pandemic.
Dealing with the pandemic took an extraordinary toll on public finances. Taxpayers are already overburdened with numerous forms of taxation coming from all levels of government. Transferring the burden to future generations simply is not sustainable. Québec and Canada must put people back to work and create the winning conditions conducive to unlocking our extraordinary natural wealth and full growth potential. It is in this context that, in anticipation of the federal and provincial budgets, Raymond Chabot Grant Thornton presents exceptional measures catered to the current equally exceptional times.
The Canadian and Quebec governments introduced several programs helping individuals and businesses get through the pandemic. We salute these measures, which were essential for preventing job loss, bankruptcies and, ultimately, a major economic crisis. However, they have led to substantial deficits—amounting to $400 billion and $15 billion for the governments of Canada and Quebec, respectively—and the numbers are still climbing! Decision makers must take action now to prevent a public finance crisis and protect future generations from having to carry a burden that would take decades to pay off.
In Quebec, we have the economic potential to bounce back stronger than most other countries. We have an educated and bilingual population, creative entrepreneurs and an abundance of natural resources and renewable energy. Vaccines will allow us to regain our freedom and reopen the economy. We can expect a flurry of activity when the public’s pent-up demand is unleashed. We’re all looking forward to going out, eating in restaurants, travelling, shopping, and interacting in a real world instead of a virtual one. The pandemic will nevertheless leave a legacy of extraordinary debt in its wake and our firm proposes innovative solutions to tackle the problem.
First, we recommend that the governments present two separate budgets: the first covering regular operations and the other covering pandemic-specific spending. In addition, our tax specialists have drawn up creative strategies to increase revenue inflows to reduce pandemic-related debt. Specifically, they’ve been looking at ways to incentivize taxpayers to accelerate taxes that would otherwise be owed later. These proposed measures include:
- For a period of 24 months:
- Allow taxpayers to withdraw funds from their RRSPs at a combined tax rate of 15%.
- Allow taxpayers to pay capital gains tax on assets (shares, income-producing properties, etc.) at a combined tax rate of 15%.
- Allow Canadian taxpayers to withdraw funds from their holding corporations and pay a combined tax rate of 20% on dividends.
- Allow corporations to increase their capital dividend account to 30% of expenses incurred on initiatives that benefit the health of their employees. By promoting better lifestyle habits, this investment from the private sector will ultimately lower healthcare spending. Corporations could therefore pay their shareholders tax-free dividends amounting to 30% of these eligible expenses.
We also believe this is a good time to reopen immigrant investor programs as this would increase foreign investment in Quebec and contribute to our economic recovery.
These bold measures are worth considering. Intergenerational equity and the stability of public spending are at stake. The federal and provincial governments have the opportunity to generate additional cash inflows without raising taxes. By reducing pandemic-related debt, we could balance the budget more quickly and reduce the burden on future generations.
11 Mar 2021 | Written by :