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Quebec a sign that federalism works


The run up to the recent Quebec election prompted a revival of the argument that only federal transfers keep that fiscally-challenged province afloat. For example, Mark Milke of the Fraser Institute argued in the National Post that Quebec is “massively subsidized by the rest of Canada.”

This argument is hugely over-done. And it contradicts a more effective and positive argument for federalism, namely that it has been no barrier to the construction of a distinctive and progressive social model in Quebec.

Federal cash transfers to Quebec through equalization and the Canada Health Transfer and Canada Social Transfer are, it should be recalled, funded from the federal tax base which includes Quebec itself. Quebec contributes 19% of Canadian GDP.

There is no doubt that federal programs result in a net transfer of fiscal resources from the rest of Canada to Quebec, but the overall scale is quite modest.

recent study by the Quebec research institute IRIS shows that Quebec receives 26% of all federal transfers, only modestly higher than its 23% share of the Canadian population.

The fiscal reference tables produced by the federal Department of Finance show that federal cash transfers contribute 23% of the Quebec government's total revenues, just a bit higher than the all province average of 21%.

While the Fraser Institute and other conservative think tanks have propagated the myth that the rest of Canada, especially western Canada, funds Quebec's generous social programs, the fact of the matter is that Quebec imposes relatively high provincial taxes to support its own progressive policy choices.

Quebec accounts for 23% of the Canadian population, 26% of all provincial government spending and 25% of all provincial own source revenues. Thus most of the difference in the level of provincial spending compared to the rest of Canada is paid for by own source revenues

Personal income tax rates are significantly higher in Quebec, starting at 16% on taxable income below $41,000 and rising to a top provincial income tax rate of 25.75% on incomes above $100,970. By contrast, the basic personal income tax rate in Ontario is 5% on the first $40,120 of income, rising to 11.16% on taxable income of above about $80,000, and to 13.16% above $514,000.

The Quebec sales tax, levied in addition to the federal GST, is 9.97%, almost two percentage points higher than the Ontario share of the HST.

A more positive argument for federalism is that it has allowed Quebec to construct a distinctive and progressive social model. As detailed in a major recent study by political scientist Alain Noel, “Quebec's New Politics of Redistribution” the model has been built on broad social consensus, often cutting across provincial political party lines.

Under the broad umbrella of family policy, Quebec provides highly subsidized, high quality child care services; much higher child cash benefits than other provinces; and much more generous maternity and parental leave benefits than the Employment Insurance program in the rest of Canada. Quebec also has much lower tuition fees for post secondary education, a markedly less punitive social assistance program, and has established a public prescription drug insurance plan.

In the realm of labour market policy, there is much more investment in worker training than in other provinces and generally higher employment standards to protect precarious workers. Employers and unions play a major role in labour market program administration, as in much of Europe.

Strikingly, Quebec has lower rates of poverty than in the rest of Canada. The proportion of Quebec residents falling below the low income line (defined as 50% of the provincial median income for a comparable household) is 10.0% compared to13.9% in Canada outside Quebec.

As Noel notes, this is quite a remarkable difference given that federal and not just provincial taxes and social programs continue to have a major impact upon income distribution.

To summarize, modest fiscal transfers from the rest of Canada plus a provincial choice to invest significantly in social programs have helped build a social model in Quebec which is unique in Canada.

That is a powerful argument that federalism is working reasonably well.