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Quebec's tax plan could slash revenues -study

Tuesday, 2 Oct 2012 | 2:32 PM ET

* Newly formed gov't proposes to scrap health levy

* Plan would boost taxes on rich, cut cap gains exemption

* Think tank says rich would find ways to avoid tax

* Ruling Parti Quebecois may reconsider any tax increase

TORONTO, Oct 2 (Reuters) - Quebec's plan to scrap a general health levy and pay for it by boosting taxes on the rich could cut provincial government revenues by C$800 million ($810 million) a year, according to a study released on Tuesday by a conservative Canadian think tank.

The minority government, formed by the separatist Parti Quebecois after Sept. 4 elections, promised to scrap a flat C$200 health-care tax. To compensate for the lost revenue, it wants to increase taxes on high earners and cut exemptions on capital gains to 25 percent from 50 percent.

The government, which has promised to balance the budget while also reversing planned university tuition fee increases, has said it might revisit the plan raise taxes after receiving a number of complaints.

In its study, the C.D. Howe Institute said taxpayers faced with the threat of higher levies would likely take steps to lower their taxable income.

"The proposed increases would create much less new tax receipts than the government expects," according to Alexandre Laurin, Associate Director of Research at the institute.

He said Quebec should not expect federal government transfers to make up for any shortfall in provincial tax revenues.

"Over the long term, declining economic activity and investment would lead to the relative impoverishment of Quebec society," said Laurin.

($1 = $0.9832 Canadian) (Reporting By Russ Blinch)

((russ.blinch@thomsonreuters.com)(Twitter: @rblinch)(Reuters Messaging: russ.blinch.thomsonreuters.com@reuters.net))

Keywords: CANADA QUEBEC/TAXES