New Quebec government could have problems over tax hike plans

Wed Sep 26, 2012 3:28am IST

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* Minority government says will negotiate on tax hikes

* Parti Quebecois needs support of opposition to govern

* PQ plans a range of higher taxes to eliminate deficit

By Rita Devlin Marier

MONTREAL, Sept 25 (Reuters) - Quebec's newly elected separatist minority government on Tuesday conceded it might have a challenge fulfilling a campaign pledge to raise taxes and thereby balance the budget.

The Parti Quebecois, which won power on Sept. 4, promised to abolish a flat C$200 ($204) annual tax which the former Liberal government imposed on most Quebecers to pay for healthcare.

The PQ had said it would make up the resulting C$1.0 billion shortfall - as well as cover the cost of expanding a subsidized day-care scheme and cancelling planned university tuition fee hikes - by increasing personal and corporate taxes.

But the PQ, which also vowed to balance the budget by 2013/14, only won a narrow minority and must now rely on support from opposition parties to govern.

Finance Minister Nicolas Marceau said he was open to discussing how the government would balance the budget but insisted it would not back down on cutting the healthcare tax.

"We were always very clear that the cancellation of the healthcare tax for five million Quebecers would be compensated by more substantial income taxes for wealthier taxpayers ... and we said we would implement the measure within 100 days," he said in an interview with public broadcaster Radio-Canada.

"As for the way of doing it, we are open to discussion. We have a minority government, and we understand that implies there will be compromise and discussion ... If a wall goes up in front of us, we won't ram into it on purpose," he said.

The outgoing Liberals said in their March 20 budget that the province would run a C$1.5 billion deficit in 2012-13.

The PQ says it will cut the personal income tax exemption for capital gains to 25 percent from 50 percent, halve incometax credits on dividends and create two higher-incometax brackets starting at C$130,000 and C$250,000.

It also promises to increase taxes and royalty rates on mining firms operating in the province.

Opposition parties are unhappy about media reports that the planned tax hikes would be imposed retroactively. Marceau has not confirmed this publicly.

The government could either negotiate with other parties or take a risk and try to push through the tax measures, gambling that the opposition would not want to bring down Premier Pauline Marois so soon after she won power.

The left-leaning PQ won 54 seats in the 125 legislature on Sept. 4, returning to power after nine years in opposition.

Marois has already announced the government will cancel controversial hikes in student tuition fees that the Liberals announced earlier this year.

The PQ's fragile grip on power means it will be unable to hold another referendum on breaking away from Canada. Two previous province-wide votes on gaining independence, in 1980 and 1995, both failed.

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