Increasing the tax burden on Quebec firms would not only penalize workers, but those who can least afford it would pay the price, according to a recent analysis by the HEC Montreal Centre for Productivity and Prosperity (CPP).
"Given that the Quebec government is currently reviewing its tax structure, we thought it was important to understand the true consequences of raising business taxes," said CPP director Robert Gagne. "Especially since the report on the study by the Quebec Taxation Review Committee shows that this possible impact on workers was ignored in its analyses and recommendations."
The CPP's researchers analyzed the results of nearly 25 studies on the impact of corporate income tax and payroll taxes on wages. They found that 20 per cent to 100 per cent of the business tax burden is passed along to workers in the end, mainly in the form of lower wages.
Moreover, this transfer is felt more by those employees with less education, seniority and experience — meaning the lowest-paid employees are often the ones who are most penalized.
The analysis concluded that even if a payroll, income or other tax targets businesses, and businesses pay this legal obligation, in the end they are not the ones who shoulder the cost. For instance, a firm could offset its tax burden through changes in its installed capital (such as buildings, machinery, tools, equipment and computers) or in its employees' working conditions (such as wages, hours, schedules and fringe benefits).
In both cases, workers are the ones who will eventually be stuck with the bill, through lower wages, fewer jobs or poorer working conditions, according to the findings.
"So when people call for higher business taxes to finance public spending, not only are they mistakenly assuming that the income and other taxes paid by businesses affect only the profits paid to shareholders, but they are unknowingly advocating a more regressive tax system for the most-vulnerable employees," said Gagne.
He also noted that businesses' tax burden is heavier in Quebec than elsewhere in Canada.
"When we add up all the payroll, income and other taxes imposed on businesses by the different levels of government, the tax burden on firms in Quebec is 1.2 to 1.7 times higher than in the other Canadian provinces. And if we dig a bit deeper, we find that payroll taxes have much to do with this situation."
In view of these findings modernizing Quebec's tax system should start with reforming business taxation, in particular by reducing payroll taxes. The businesses' burden should be comparable to that in the other provinces — this would not only improve Quebec's tax competitiveness, but also have a positive impact on workers' wages, especially those of the least well-paid Quebeckers, said the group.
"In addition, if the government is worried about losing the huge revenue generated by the payroll taxes collected from businesses, estimated at close to $4 billion in 2013, it could rethink the assistance it simultaneously offers these same businesses," said Gagne. "Remember that this assistance doesn't always have the intended impact and can even have negative effects on the economy, according to some other studies that have been done."