Social Tax Expenditures: The Case of Quebec

While the world is weathering the COVID-19 storm, the role of sound social protection systems has become even more crucial. Designing social protection expenditures that are fit for purpose and that contribute to coming back stronger while leaving no one behind is imperative.

Public intervention through the tax system – i.e., through deductions, exemptions, deferrals and other tax measures – is a key pillar for that. Social tax expenditures (STEs) often complement other intervention mechanisms in social protection such as cash transfers and in-kind public services (Godbout, 2006; Provencher et Godbout, 2021). Yet, the scrutiny behind them can vary significantly. In some jurisdictions, governments publish an annual report providing information on tax expenditures including the revenue forgone triggered by these provisions. Often, however, information on tax expenditures is very limited making it difficult to identify STEs and their costs (Zemmour, 2013). This opacity in the tax expenditure field is often exacerbated when it comes to subnational governments.

Social tax expenditures in Quebec

In Canada, municipal, provincial and federal governments share taxing powers. Quebec’s taxpayers, for instance, are required to file two income tax returns every year; one at the federal level and one at the provincial level. In a recent paper, we assess each tax expenditure provision within Quebec’s personal income tax system according to seven broad social protection objectives: (1) supporting income, (2) promoting pensions, (3) helping employment, (4) recognizing family responsibilities, (5) encouraging education, (6) pursuing a specific social objective, and (7) promoting tax equity.

The 6th category – pursuing a specific social objective – comprises tax expenditures more specifically aimed to: (i) respond to a particular problem (e.g., tax credit for the treatment of infertility), (ii) improve the living conditions of a specific group of individuals (e.g., tax credit for home-support services for seniors), and (iii) strengthen social participation of a particular segment of society (e.g., tax credit for children’s activities). The 7th and last objective cited above to promote tax equity covers supplementary measures which are not included in the benchmark tax structure as progressive taxation and other features of the tax system (e.g., credit transfers from one spouse to the other).

To provide a more granular picture of social protection spending in Quebec, we identified 65 tax expenditures for social purposes in 2019 (STEs), totalling C$20.2 billion (Finances Québec, 2020). Figure 1 illustrates their distribution by social protection objective. Pension-related tax expenditures account for the largest proportion of revenue forgone, amounting to nearly C$9.5 billion, or 47.1% of all STEs. Next in order of magnitude are tax expenditures associated with family responsibilities (16.8% of expenditures), followed by income support (13.1%), pursuing a specific social objective (10.2%), and employment support (7.8%). Finally, spending aimed at promoting tax equity and supporting education account for 5% of the total.

 Figure 1. Distribution of Tax Expenditures for Social Purposes, by Policy Objective – 2019

Source : Authors’ calculations based on Finances Québec (2020). Dépenses fiscales. Édition 2019 [Tax Expenditures. Taxation Year 2019].

The distribution of STEs by type of tax expenditure as illustrated in Figure 2 shows that tax deferral [1] is the most important form of tax expenditure, accounting for more than 44% of all STEs in 2019. The refundable tax credit is the second most used form of STEs (31.9% of STEs), followed by non-refundable credits (15.4%). Finally, tax deductions (4.9%) and exemptions, waivers and non-taxation programs (3.5%) close the gap.

Figure 2. Distribution of Tax Expenditures for Social Purposes, by Form of Expenditure – 2019

Source : Authors’ calculations based on Finances Québec (2020). Dépenses fiscales. Édition 2019 [Tax Expenditures. Taxation Year 2019].

The C$3.4 billion spent by the Quebec Government as tax expenditures in recognition of family responsibilities, are offered entirely as refundable tax credits for family allowance and childcare expenses. The bulk of STEs used for pension plans, 94% of C$9.5 billion, is channeled through tax deferrals, mostly through registered savings plans. 69% of the C$2.6 billion in tax expenditures devoted to income support are provided through refundable tax credits such as the solidarity tax credit, followed by non-refundable tax credits, such as age and retirement income tax credits, which account for more than 17% of this category. Finally, exemptions from taxable income for certain benefits from public compensation programs accounts for 14% of the STEs to support income.

Table 1. Cost in million C$ and (number) of measures by objective and type of measure – 2019

The prevalence of STEs highlights the extent of recourse to tax expenditures as a complementary tool for public intervention in the area of social protection in Quebec. By way of comparison, STEs increased by 27.3% between 2014 and 2019 (Finances Québec, 2020) compared to a growth of 24.7% for total expenditures, excluding debt servicing (Finances Québec, 2020). The challenge is to gain a clearer understanding of the relationship between these STEs and the various transfer payment arrangements to individuals included in the expenditures that make up the multiple ministerial portfolios.

Moreover, since the architecture of social protection in Quebec is deployed in the context of a federation, it interacts with other tiers of government. Hence, both tax and budget expenditures from all tiers of government should be taken into consideration to get the full picture. The assessment of tax expenditures for social purposes in Quebec is a first step in this direction.


[1] There can be significant gains to the deferrer. For example, pension received is often taxed at a lower rate than the contribution would have been at the higher marginal rate of the earner. In addition, the investment income is not taxed until the time of withdrawal.