* New government may back down after protests
* Says wants to avoid hitting middle-class citizens
* Recognizes need to win opposition party support
* Also will modify plans for royalties - newspaper interview
By Rita Devlin Marier
MONTREAL, Oct 1 (Reuters) - Quebec's newly-elected government looks ready to revisit a controversial plan to hike personal income taxes and slash the exemption for capital gains retroactively.
Finance Minister Nicolas Marceau said late on Sunday he was weighing changes to the plan after receiving numerous complaints.
"Very soon, I will detail what will be included and what won't be" included in the tax hike plan, he said on a popular talk show aired on public broadcaster Radio-Canada.
The separatist Parti Quebecois (PQ), which won a minority government in the Sept. 4 election, had said it plans to scrap a flat tax for health care which applied to everyone, replacing the lost revenue with hikes in income and capital gains taxes.
The original plan would cut the personal income tax exemption for capital gains to 25 percent from 50 percent, halve the tax credit on dividends, and create higher tax brackets starting at C$130,000 and C$250,000.
The fiscal measures were announced in the campaign. But it only emerged last week that the government was looking to make them retroactive for the 2012 taxation year in order to compensate for the loss of revenue from the health tax.
Marceau was quizzed on the fact that the measures would affect not only the wealthy, but average Quebeckers who might be realizing one-off capital gains on the sale of real estate or other assets.
"What you just brought up as a problem is something I have heard a lot ... and I can tell you I am reflecting and thinking of quickly announcing changes to what we have put forth so that those people are not affected," he said.
"First there is the objective not to affect those people and second, there is the need to make our negotiations with the other parties easier."
RELIANT ON SUPPORT
Because the PQ only won a minority of seats, it requires the support of one or both of the other two major parties to pass the tax measures. Neither one supports the tax hikes though neither is eager to bring on a quick new election campaign by voting the new government down.
The government also indicated some flexibility over the weekend in its plans to increase mining royalties to help balance the budget. These had included a 30 percent surtax on any mining profits over an 8 percent return on the investment.
Natural Resources Minister Martine Ouellet said in an interview with La Presse newspaper that she would "modify the royalty system in collaboration with businesses," adding that she was open to learning of their constraints and worries.
Shortly after being named minister last month, Ouellet said she wanted a permanent ban on shale gas exploration and production in Quebec.
She told the paper that she favored other energy sources and that while natural gas would remain an important part of Quebec's energy mix, the PQ believed "there are ways to reduce it significantly in industry and in domestic and commercial consumption."
Ouellet said the government was more open to oil production. "Oil is different. The government's position on oil is yes, though not at any cost," she said.
(With additional writing by Randall Palmer, editing by Jeffrey Hodgson and Carol Bishopric)
Keywords: CANADA QUEBEC/