09/26/2012 12:06 EDT | Updated 11/25/2012 05:12 EST

PQ says it's flexible on retroactive tax hikes

The Parti Québécois says it will be flexible in considering whether to impose tax hikes retroactively on the province's richest residents, even though it says they should have known a tax increase for the current fiscal year was in the cards.

Finance Minister Nicolas Marceau took the airwaves Tuesday to try to tamp down an outcry from opposition parties and some business groups over his government's plan to create two new tax brackets for the rich and to raise taxes on capital gains and dividends.

Premier Pauline Marois pledged during the recent election campaign to scrap the $200-a-year health fee that most adult Quebecers pay, and to make up for the lost revenues by hiking income taxes on high earners.

Marceau admitted Tuesday on CBC's French news service that his party never explicitly said the tax hikes would be retroactive to the start of 2012, but he said voters should have known.

"Mrs. Marois was very clear that we wanted to implement this measure within the first 100 days in office — that next April, when people will be filling out their tax forms, they wouldn’t see a line saying 'health tax, $200,' " Marceau said.

"People understood that taxes on the rich were going to go up, and quickly, because we said we were going forward with this quickly."

Top rate would hit 31%

The government wants to raise the top tax bracket for people who earn more than $130,000 a year (after deductions for RRSP contributions and the like) to 28 per cent from 24 per cent. For those who earn more than $250,000, the marginal rate would go up to 31 per cent.

The amount of capital gains subject to tax would also rise to 75 per cent, and tax credits on income from dividends would be curbed.

In order to eliminate the health fee immediately and make up for the $1 billion in revenue it was projected to bring in, those tax hikes would apply retroactively.

Opposition parties say that would be unfair to business owners, property developers and retirees living off investment income, who all suddenly face a higher tax bill come April.

But Marceau said the minority government, which needs the support of at least one of the two major opposition parties to pass the tax increase, will be "open" to fine-tuning its plans. It could drop the retroactivity of the capital-gains or dividends measures, or both, for instance.

"The Finance Ministry is studying the different scenarios — the financial and economic impacts — and there's lots of possibilities," Marceau said Tuesday. "And then there will be negotiations with the other parties."

The minister, a former professor of economics, also dismissed concerns that hitting up Quebec's wealthy would send them scurrying to other provinces where taxes are lower.

"Serious studies on the behaviour of the well-off show that they don't react a lot to taxation measures like this. They do react a little, which is why you have to find an equilibrium."

'We don't have enough rich'

The opposition Liberals said the PQ's position-shifting proves the party is hatching policy by "improvisation."

Sam Hamad, the Liberal MNA for the Quebec City riding of Louis-Hébert, said a retroactive tax increase is unacceptable to his party.

"They’re raising taxes on people who work hard, who create wealth in Quebec," the former economic development minister said. "We want to attract more headquarters to Montreal, we want to attract more talent to Québec, and when those people who earn $130,000 or $140,000 a year see our taxes, our tax increases, they’re going to go to Toronto.

"We don’t have enough rich in Quebec."

Like the PQ, the third opposition party, the Coalition Avenir Québec, wants the health fee revoked, but prefers to make up the fiscal difference by cutting spending.

The government might be able to find common ground with the CAQ, but it will be tough to appease the Official Opposition Liberals. They created the health fee and it might look hypocritical to agree to dismantle it. On the other hand, the Liberals are without a permanent leader following the resignation of Jean Charest, and will be reluctant to bring down a minority government and force another election without someone firmly at the helm.

The PQ's proposed new tax brackets would affect 145,000 Quebec taxpayers who make more than $130,000 a year. A person earning $150,000 would pay $600 more in tax, while someone with an income of $500,000 would pay $22,100 more.