Preliminary Costed Fiscal Framework: Four-Year Personal & Corporate Tax Reform

Executive Summary

This document presents a fully costed fiscal framework for CaPQ's four-year provincial tax reform. It decomposes revenue recapture by source, models structural government reforms, treats SAQ and SQDC reform as a private-market tax-and-markup transition rather than a simple loss of dividend, and includes a tax-base simulation showing how bracket migration materially improves the long-run picture. The model deliberately does not assume tax cuts pay for themselves: the central long-run recapture rate is approximately 40%, meaning each dollar of tax reduction produces roughly 40 cents of additional provincial revenue.

The gross annual cost at full implementation (2030) is approximately $20.6 billion. After dynamic recapture (~$6.2B), structural savings (~$3.5B), loophole closures (~$0.8B), and other offsets, the net annual fiscal gap in 2030 is approximately $10.1 billion, declining to a long-run range of $9-11 billion per year by the mid-2030s as the economy compounds.

Is This a Deficit or a Surplus? - The Annual Number, Plainly

To be direct about what this plan means for the province's books each year: this is a recurring annual financing gap, not a one-time cost, and it does not cross into surplus in any scenario modeled in this document. It is, however, a much smaller gap than the $20.6B headline price tag of the tax cuts - because recapture, structural savings, and the measures in Section 10 all work to close it every single year, not just once.

Figure - The actual year-by-year fiscal gap (central scenario): the core reform on its own, and with the Section 10 consumption-tax and childcare measures layered in.

In plain terms: once the reform is fully phased in (2030), Quebec would need to finance a gap of roughly $9-10 billion a year, not the $20.6 billion sticker price - and the Section 10 measures shave a further $0.68B/year off that, central estimate. That gap narrows toward the $8-9B range through the early-to-mid 2030s as recapture keeps compounding, then drifts back up toward $9.5-10.5B/year by the early 2040s as the gross cost's 3%/year growth gradually outpaces the recapture rate's own growth. At no point in the central scenario does the province run a surplus from this reform alone - the reform is designed to shrink the gap it creates, not eliminate it, and Section 12 sets out the conditions attached to proceeding regardless.

1. Baseline Fiscal Context

All baseline figures are drawn from Quebec's Budget 2026-2027 and the Economic and Financial Summary, March 2026.

2. The Tax Reform Package

Figure - Top-bracket threshold today versus proposed 2030.

By 2030, the basic personal amount rises from $18,952 to $23,500, all four marginal rates fall, and the top-rate threshold expands from $132,245 to $250,000 - meaning a taxpayer earning $180,000 moves entirely out of today's 25.75% top bracket and into the 20.5% bracket. The general corporate rate falls from 11.5% to 5.0%, phased in over 2027-2030. The reform also exempts the first $3,500 of eligible overtime earnings and reforms the taxation of employer-paid health and dental benefits.

2026 Quebec Personal Income Tax, and This Platform's Four-Year Phase-In

2026 Quebec General Corporate Tax Rate, and This Platform's Four-Year Phase-In

Who Benefits: Tax Savings by Income Level

The five-point table above is illustrative; the fuller picture computes provincial tax payable under the 2026 status-quo brackets and the 2030 proposed brackets directly from the statutory formulas, at steady state - the ongoing annual saving once the reform is fully phased in, not the four-year transition-period total shown above.

Figure - Annual provincial tax savings by income level: dollar amount and as a share of income.

The dollar savings rise with income, as they do under any proportional-rate cut - a taxpayer paying more tax in dollar terms saves more in dollar terms. But the more relevant test for a fairness critique is the share of income each taxpayer keeps: that share is fairly flat through the middle of the income distribution (roughly 2.5% at $25K-$75K), rises through the upper-middle brackets (peaking at 4.18% around $300K, where the widened third bracket has its largest effect), and then declines for the highest earners - 3.41% at $500K, 2.83% at $1M - because the top-rate cut itself is comparatively small next to the cuts lower in the schedule. The widened third bracket, not the top-rate cut, does most of the work.

How Quebec's Proposed Rate Compares

Figure - General corporate income tax rate: Quebec's proposed 5% against other Canadian provinces and two international reference points (KPMG, March 31, 2026).

At 5%, Quebec's proposed general corporate rate would be the lowest of any Canadian province by a wide margin - three points below Alberta's 8%, and less than half Ontario's or Quebec's own current 11.5%. It would also undercut Ireland's 12.5% rate and sit well below the U.S. federal rate of 21%. This is the competitive positioning the private-capital financing model in the companion Energy Policy Platform depends on.

3. Gross Cost of the Reform

The gross cost is identical across all three scenarios - the scenarios differ only in how much of it is recaptured, not in the underlying price tag. Full annual cost at implementation is $20.55B, phased in at 25% (2027), 50% (2028), 75% (2029), and 100% (2030), then growing with the tax base at roughly 3% nominally per year.

4. Dynamic Revenue Recapture

The recapture rate ramps from roughly 10% in 2027 to approximately 40% by the mid-2030s in the central scenario, decomposed across four channels: higher employment and wages (40% of recapture), corporate investment and profits (30%), additional consumption and QST (20%), and other economic effects (10%).

Figure - Where the $113.0B in 15-year central-scenario recapture comes from.

4.1 Bracket Migration: A More Granular View of the PIT Channel

A taxpayer-distribution simulation, calibrated to Quebec's actual 2026 PIT base (7.04M taxpayers, $372B in taxable income), models how the reform's much wider brackets change the number of taxpayers in each bracket over time. Because the third-bracket ceiling rises from $132,245 to $250,000, a large block of taxpayers who would sit in today's 25.75% top bracket instead fall inside the reformed 20.5% bracket - and as wages grow, new taxpayers migrate upward into that bracket at the lower rate, generating PIT revenue even as rates fall.

Figure - Cumulative PIT-only recapture rate over 15 years, by scenario.

5. Employment & GDP Channels

Figure - Additional employment above the Quebec Budget baseline, by scenario.

The employment model estimates jobs above the number that would otherwise exist under the status quo - not jobs created from nothing. The baseline itself is weak: Quebec's own budget projects only 16,100 new jobs in 2027 with a shrinking labour pool. Central-scenario job creation reaches 200,000 above baseline by 2041, driving a wage mass that feeds PIT, QPP, and QST revenue.

The corporate tax reduction is modeled as producing a moderate private investment response, not an automatic one. A 5% general rate would make Quebec the most competitive general corporate tax jurisdiction in Canada, but the model assumes only 30% of recapture comes through this channel, reflecting that some investment would have occurred regardless and some of the benefit accrues to existing shareholders.

6. Structural Government Reforms

Three recurring savings streams are modeled separately from economic recapture, ramping to a central target of $4.5B/year by 2031: Revenu Québec restructuring ($0.75B), tax-credit reform ($1.75B), and procurement/administrative consolidation ($2.0B). Quebec reports total corporate tax assistance of $4.6B in 2026; the principle applied here is that if a special credit is needed to make a project viable while the general rate is also high, the general rate - not the patchwork of credits - should be fixed. The verified C3i ($642M) and CRIC ($673M) credits are candidates for review; other program figures are working estimates pending confirmation by a proposed Tax Expenditure Commission.

7. Closing Personal Income Tax Loopholes

With the basic personal amount rising to $23,500, several remaining PIT preferences become harder to justify. Total identified closures reach approximately $835M/year at full phase-out (2030), growing to ~$1.16B/year by 2041 - led by the Lifetime Capital Gains Exemption ($364.9M, verified from the Quebec Tax Expenditure Database and claimed by only 9,048 taxpayers), the Quebec stock-option deduction (~$200M, working estimate), and smaller labour-fund, flow-through-share, and foreign-specialist preferences.

8. SAQ and SQDC: Private-Market Reform, Not Simple Privatization

The SAQ generated $1.389B in net income in 2025-26. Rather than modeling this as a straight $1.389B loss, the reform moves alcohol retail into a competitive private market while Quebec retains an Alberta-style wholesale markup (AGLC's effective rate is 29.4% of sales), licensing, and regulation. Netting the lost dividend against the new markup, corporate tax, and licensing revenue produces a small residual cost of roughly $120-150M/year - far smaller than the headline dividend suggests.

SQDC reform follows Ontario's OCS model instead: a public wholesaler alongside licensed private retail, with the legal age lowered from 21 to 18. Scaling Ontario's $2.28B legal cannabis market to Quebec's population and lower prevalence implies a domestic legal market of roughly $0.97B, versus SQDC's current ~$0.81B - an incremental $0.16B/year in legal sales from retail expansion, plus roughly $38M/year from capturing 18-20-year-olds' spending into the legal market. Combined with a public wholesale markup, this reform is modeled as a net fiscal gain of approximately $48M/year at full transition.

Is the SAQ Reform 'In the Black'?

As modeled using Alberta's published markup rate, the SAQ component alone is not in the black: it costs the treasury roughly $170-200M/year, which the SQDC component's ~$48M/year gain partly offsets, netting to the combined $120-150M/year residual cost shown in the Executive Summary table. That residual is small - about 1-1.5% of the recurring annual fiscal gap - but it is a cost, not a surplus.

9. Complete Net Fiscal Impact

Figure - 15-year net fiscal impact by scenario.

By the early-to-mid 2030s, dynamic recapture approaches $8-10B/year and structural reforms contribute a further ~$4.5B/year, bringing the recurring annual fiscal gap down to roughly $9-11 billion in the central long-run scenario - well below the $20.6B headline gross cost.

10. Proposed Additional Revenue Measures

Beyond the core reform, three targeted consumption-tax increases were evaluated for inclusion in this framework. Each is modeled conservatively and netted against a behavioural-response haircut for reduced consumption, cross-border substitution, or contraband risk.

Figure - Estimated annual revenue from the three proposed measures (central estimates).

Combined, the three measures are conservatively estimated to raise approximately $175M-$180M per year in additional recurring revenue - roughly $2.6-$3.0 billion cumulatively over 15 years before accounting for base growth. All three use existing tax machinery and are retained as a supplementary revenue stream, not treated as a fifth core pillar of the reform.

10b. Eliminating the Electric Vehicle Purchase Subsidy

Quebec's Roulez Vert program is already scheduled by current law to end its new-vehicle purchase rebates on January 1, 2027, after a legislated step-down from a $4,000-$8,000 peak to $2,000 in 2026. This platform commits to confirming that phase-out, closing the related luxury-vehicle registration-fee exemption on schedule, and declining to introduce a successor purchase-subsidy program.

Independent research, including a McGill University Max Bell School analysis, finds that EV purchase subsidies are structurally regressive because EV purchases remain concentrated among higher-income households. A broad corporate and personal tax cut, or the means-tested measures below, puts money back in the hands of Quebecers squeezed by the cost of living rather than subsidizing a purchase that higher earners disproportionately make.

10c. Means-Tested Childcare Assistance

Quebec's subsidized daycare network charges a flat $9.65/day (2026) regardless of family income. This platform proposes tapering provincial childcare assistance by family income, preserving full assistance for families under $100,000 and phasing it out to the unsubsidized market rate at $200,000 and above.

Modeled against an estimated 220,000 subsidized spaces and a $50/day illustrative market rate, this taper is estimated to reduce the province's annual childcare subsidy cost from approximately $2.31B to approximately $1.79B - savings of roughly $500M/year. Families under $100,000 see no change to their daily rate.

10d. A Quebec Sovereign Wealth Fund

This platform proposes directing new mainland energy royalties - net of the Municipal Royalty Dividend's 15% municipal share - into an expanded Fonds des générations rather than general revenue. The fund would follow a two-stage sovereign-wealth structure: continued accelerated debt paydown while net debt-to-GDP remains above the government's 32.5% long-run target, then a shift toward an investment portfolio whose returns support recurring general revenue.

Quebec's net debt stood at 38.8% of GDP as of March 31, 2026. The Energy Policy Platform's projected $127-$154B net-new treasury yield over 25 years is the natural source for new fund inflows; even a fraction of that stream, compounded in a debt-reduction vehicle, could let Quebec reach its long-run debt target earlier and improve borrowing costs and resilience.

10e. Investissement Québec and Discretionary Corporate Subsidies

This is a separate lever from the tax-credit reform in Section 6: Quebec's direct corporate subsidy and equity-investment apparatus, delivered mainly through Investissement Québec's discretionary funds. It is direct government spending and risk-taking on individual companies, distinct from the $4.6B in tax credits already addressed.

According to the Montreal Economic Institute, Quebec disbursed more than $8.5 billion in corporate subsidies in 2024, up from $4.8 billion in 2018 - a 46.2% real increase, or $945 for every Quebecer. Quebec's Budget 2025-26 discloses at least $515 million in 2024 losses on investments that went bad. Northvolt's near-total-loss convertible debenture and Lion Électrique illustrate the pattern.

The platform proposes ending Investissement Québec's discretionary large-bet mandate while preserving SME export financing, working-capital loans, and administration of federal-provincial programs. A lower, broad-based corporate rate that applies equally is presented as a more productive use of public dollars than selecting individual winners.

10f. Combined Effect of the Additional Measures

Figure - Central 15-year net fiscal gap: core reform versus the additional measures layered on.

NetFiscalImpact_15yr = Gross - Recapture - Structural - (LoopholeClosures + NewConsumptionTaxes) - ChildcareSavings + SAQ/SQDC - PropertyTax

The childcare figure assumes a flat $500M/year saving with no compounding, held in 2026 dollars for transparency. Investissement Québec's discretionary-subsidy wind-down is deliberately excluded pending a verified portfolio breakdown.

10g. Freezing Bracket Indexation, 2031-2035

After the reform's final implementation year, this measure freezes all four bracket thresholds and the basic personal amount at their 2030 dollar levels for five fiscal years, rather than indexing them to inflation. Indexation resumes from 2036. As nominal wages grow while thresholds stay fixed, a growing share of income is taxed at the next bracket up each year.

10h. Updated Combined Effect, Including the Bracket Freeze

NetFiscalImpact_15yr = Gross - Recapture - Structural - (LoopholeClosures + NewConsumptionTaxes) - ChildcareSavings - BracketFreezeRevenue + SAQ/SQDC - PropertyTax

At $69.7B over 15 years, the central-scenario gap is roughly half the originally published $133.9B headline - driven mostly by the bracket freeze, which is also the least-verified figure in this stack. This is the most complete sensitivity the framework offers, not a replacement headline; Section 9's $133.9B remains the conservative, primary-source-grounded figure.

11. Scenario Comparison & Sensitivity

The central scenario is the recommended figure - positioned between a pessimistic case that ignores economic feedback effects and an optimistic case that overstates them. A one-year implementation delay would reduce the 15-year gross cost by about $22B while also delaying recapture, for a broadly neutral net effect; a 2027-2028 recession on the scale of Quebec's budget stress test would widen the 15-year gap by roughly $18.5B.

12. Fiscal Safeguards

• The reform is phased in only alongside a published fiscal framework and annual assessment of revenue performance.

• No stage proceeds without a credible plan to protect essential health, education, and emergency services.

• Later stages of the corporate-rate reduction are conditional on independent costing, revenue performance, and investment and employment targets.

13. Limitations

This is a preliminary policy costing, not an official budget estimate or microsimulation. Several inputs - including the bracket-migration model, CDAE/multimedia/film tax-credit figures, and structural-savings targets - are working estimates that should be confirmed with Quebec tax-return microdata and a formal expenditure review before final legislation. All figures are in Canadian dollars, provincial revenue only; federal income tax is excluded throughout.

Anticipated Criticisms & Responses

The strongest objections this framework will face, and the document's response to each, are set out directly.

'This is a tax cut for the rich'

The distributional analysis uses statutory bracket math: the share of income Quebecers keep is fairly flat through the middle of the distribution and declines for the highest earners (2.83% at $1M versus 4.18% at $300K), because the top-rate cut is smaller than the cuts lower in the schedule. Combined with means-tested childcare and the end of the regressive EV purchase subsidy, the framework's net direction on high earners is more mixed than that headline suggests.

'The fiscal gap will not actually close - recapture is optimistic'

No scenario reaches 100% self-financing, and the conservative 20%-25% recapture scenario is presented alongside the central case. The annual-gap table shows the amount Quebec would need to finance even if recapture undershoots: roughly $15-$18B/year in the conservative long-run scenario, not zero.

'Cutting Investissement Québec's subsidies will scare off investment'

The framework preserves SME export-financing and working-capital functions and targets the discretionary large-bet mandate. Its broader argument is that a low, predictable, broad-based rate attracts more investment than case-by-case government bets.

'Raising tobacco, vape, and lodging taxes contradicts a low-tax platform'

These are the only tax increases in the framework and they are targeted, not broad-based. They do not touch income, corporate, or general consumption (QST) taxation, which are all falling. Quebec remains the lowest-taxed province on tobacco even after the proposed increase.

Sources Consulted

Appendix A: Formulas Used in This Framework

Every dollar figure in this framework traces back to one of the identities below. Variables with a _t subscript are year-specific; 'sum' denotes a sum across the stated year range.

A. Core Reform Cost and Recapture

B. SAQ and SQDC Reform

C. Loophole Closures and Section 10 Additional Measures

D. Net Fiscal Impact