More than a decade after Quebec and the federal government implemented significant personal income tax rate reductions, what has happened to Quebecers’ take-home pay? This paper answers the question by looking at marginal effective tax rates (METRs) on personal income, which measure the impact of federal and provincial income taxes combined with the impact of reductions and clawbacks of income-tested tax credits and benefits. Income-tested credits and benefits mostly target financial support to low-to-middle income families with children and to low-income seniors. However, clawbacks and rate reductions apply to those credits and benefits as incomes rise above set thresholds, raising METRs for those income groups and family types. Overall, METRs are lower than a decade ago, but for many low-to-middle income Quebec families with children, they are higher. The province’s residents generally face the highest tax rates in the country, with an average METR in 2011 exceeding the national average by four percentage points.Fiscal and Tax Competitiveness, Province of Quebec, marginal effective tax rates (METRs)

Alexandre Laurin

Finn Poschmann

English

Research Papers in Economics

e-brief
FISCAL AND TAX COMPETITIVENESS
What Has Happened to Quebecers’ Marginal Effective Tax Rates?
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May 18, 2011
 More than a decade after Quebec and the federal government implemented
significant personal income tax rate reductions, what has happened to
Quebecers’ take-home pay? We answer the question by looking at marginal
effective tax rates (METRs) on personal income, which measure the impact of
federal and provincial income taxes combined with the impact of reductions and
clawbacks of income-tested tax credits and benefits. 
 Income-tested credits and benefits mostly target financial support to low-to-
middle-income families with children and to low-income seniors. However,
clawbacks and rate reductions apply to those credits and benefits as incomes rise
above set thresholds, raising METRs for those income groups and family types.
 Overall, METRs are lower than a decade ago, but for many low-to-middle-income
Quebec families with children, they are higher. The province’s residents generally
face the highest tax rates in the country, with an average METR in 2011 exceeding
the national average by four percentage points.
After-tax take-home pay is a vital concern for taxpayers. Tax rates are primarily determined by the schedule of
federal and provincial personal income tax rates, which are set by legislation as percentages of individual
taxable income above set thresholds. Quebec and federal tax rates on personal income have declined
significantly since the early 2000s. In Quebec, statutory rates have gradually fallen from 20, 23 and 26 percent
in 1999 to 16, 20 and 24 percent in 2011. Similarly, the 2000 federal budget launched a process taking
basic federal tax rates from 17, 26 and 29 percent that year, with the highest rate kicking in at individual
taxable income of $59,180, to rates of 15, 22, 26 and 29 percent in 2011, with the top rate now kicking in 
at $128,800.
After-tax incomes are also affected by reductions and clawbacks of the benefits and credits that target
support to low- and middle-income households, particularly families with children, or seniors. As their
income passes certain thresholds, the reductions and clawbacks begin, acting as a disincentive to make
additional income. The combined impact of tax rates, benefit reductions, and clawbacks is the marginal
By
Alexandre Laurin and Finn PoschmannINDEPENDENT REASONED RELEVANT
e-brief | 2
effective tax rate, or METR, on incremental income. High METRs reduce the gains for individuals from working more
hours, and increase the gains from efforts to avoid taxes.
This e-brief examines current Quebec METRs, and how they compare with those of other provinces, following a
decade of falling tax rates and increasing benefits and credits. Rate reductions, combined with the elimination of
federal surtaxes, have resulted in generally lower METRs for Quebec families; by an average of more than six
percentage points, since 1999. However, the province’s residents generally face the highest tax rates in the country,
with an average METR in 2011 exceeding the national average by four percentage points. For many families – mostly
low-to-middle-income families with children – rates are very high in 2011 compared to 1999.
Background: The Impact of Targeted Benefits
Graduated income tax rate schedules impose tax burdens that rise as a percentage of income as taxpayers’ incomes
rise. In the Canadian system, this geared-to-income approach has spread, in particular with the introduction of the
Child Tax Credit in 1978, paid to families with young children. The value of the credit, when introduced, was scaled
back for families with income above $18,000, and eliminated entirely at a family income above $26,000.
-40
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$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000
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Family Income
1999 2011
Figure 1: Marginal Effective Tax Rates (METR) for a Typical Dual-Earner Family of Four (Two Parents, Two Children),
Quebec, 1999 and 2011
Assumptions: Each parent earns 50 percent of the family’s income and children are both under five years old. The family’s income source is
employment. For calculating tax credits for shelter costs, $1,000 per month rent is assumed. Child care expenses are not modeled. 
Source: Authors’ calculations using Statistics Canada’s SPSD/M, v. 18.1. Responsibility for the results and their interpretation lies with the authors. INDEPENDENT REASONED RELEVANT
| 3 e-brief
INDEPENDENT REASONED RELEVANT
In 1992, the federal government rolled together several family-related deductions, credits and benefits into a larger,
income-tested Child Tax Benefit. This became the basis for the larger-yet National Child Benefit System which,
beginning in 1998, sought to provide, through the tax and transfer system, minimum incomes for families with children.
The program has changed over the years: the basic federal benefit for a first child grew from less than $2,000 in 2000
to over $3,400 in 2011. 
The effective tax rates that are needed to limit the cost of these benefits and credits have also grown in either
magnitude, meaning higher clawbacks or reduction rates, or in breadth of application, meaning higher than otherwise
METRs apply to families farther up the income scale.
1 For many earners, this sharply reduces the gains from working
(Davies 1998, Poschmann 1999, Poschmann and Richards 2000).
2
Yet the child benefit system has been successful at providing transfer income to families with children that have little
or no market income, and the amount is now substantial – the federal benefit for a family with three children in 2011
is about $10,000. In addition, the Quebec provincial benefit is about $4,450. But targeting benefits to families on the
low end of the income scale, which is necessary to keep the programs’ costs down, has a big impact on METRs,
1999 2011
Family Income
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$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000
Figure 2: Marginal Effective Tax Rates (METR) for a Typical Single Senior Individual, Quebec, 1999 and 2011
Assumptions: METRs calculated for a single senior individual, incremental income is from taxable pension sources, with no employment income.
For calculating tax credits for shelter costs, $1,000 per month rent is assumed.
Source: Authors’ calculations using Statistics Canada’s SPSD/M, v. 18.1. Responsibility for the results and their interpretation lies with the authors.
1 For families with three children, the federal child benefit clawback on the basic benefit applies to family incomes up to about
$150,000.
2 A personal marginal tax rate increase of 10 percent reduces reported taxable income by 2 to 7 percent, depending on income level
(Canada 2010).INDEPENDENT REASONED RELEVANT
e-brief | 4
1999 2011
Family Income
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$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000
0
Figure 3: Marginal Effective Tax Rates (METR) for a Typical Single Individual Without Children, Quebec, 1999 and 2011
Assumptions: METR calculated for a single individual aged under 65 on his/her income from employment, with no other sources of income. For
calculating tax credits for shelter costs, $1,000 per month rent is assumed.
Source: Authors’ calculations using Statistics Canada’s SPSD/M, v. 18.1. Responsibility for the results and their interpretation lies with the authors. 
especially when the reductions are substantial. In the case of the federal low-income supplement for families with three
children, the benefit reduction rate now adds 33.3 percent to the METRs above income of about $24,500.
The impact of these taxes, benefits and clawbacks is substantial, and it exposes families at low-to-mid-income levels
to METRs higher than those for higher-income families. For families in Quebec, for example, they are persistently over
60 percent for typical wage earners with two young children, topping almost 80 percent around the $40,000 mark
(see Figure 1). For all Quebec families with children in the $25,000-to-$45,000 income range, average METRs
increased by 7 percentage points in the last decade, leaving them higher than in Ontario (Laurin and Poschmann 2011).
For seniors, METRs are also high at the low end of the income scale. The main influence on seniors’ METRs is the
sharp phase-out of the Guaranteed Income Supplement, a federal cash transfer that has been successful in reducing
the incidence of poverty among Canada’s seniors. The benefit comes at a price, however, which includes METRs higher
than 80 percent for some of the lowest-income families. The income-tested phase-out of provincial benefits such as the
Solidarity Tax Credit,
3 as well as the federal nonrefundable age tax credit
4 and the nonrefundable Quebec combined
3 Announced in the 2010 provincial budget, the Solidarity Tax Credit replaces the Quebec Sales Tax (QST) credit, the property tax
refund and the credit for individuals living in northern villages. Individuals and families eligible for both the housing and QST
components see their credit amount reduced by 6 percent of income over the $30,490 threshold.
4 The federal age tax credit amount has grown from about $3,500 in 2000 to almost double that now. INDEPENDENT REASONED RELEVANT
| 5 e-brief
INDEPENDENT REASONED RELEVANT
age, living alone, retirement credit
5 leaves low-income seniors facing among the highest possible METRs in Canada
(Figure 2).
The METR profile is simpler for households without children or seniors. They have benefited less from transfers,
but the steep reduction of the Quebec/federal Working Income Tax Benefit from the $10,500 income threshold to
about $20,000, and the combined rate reductions of the Quebec living-alone credit and newly introduced Solidarity
Tax Credit, still expose them to METRs above 40 percent up to about $50,000 in income (Figure 3). 
Families with children
Families without children
Elderly families
Own-Source Income
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Vertical lines equal median income
Figure 4: Average Family Marginal Effective Tax Rates (METRs) in Quebec, by Family Types 2011 
Note: This chart shows average METRs calculated for each income vintile. Vintiles divide the income range into 20 equal parts, so that the
bottom vintile, for example, represents the 5 percent of families whose incomes are lower than the next 95 percent. Families with children are
single- or dual-parent families with minor children. Families without children are non-elderly single individuals and married or common-law
couples without children. Rates are computed on the incremental income earned by the higher earning spouse. Recipients of social assistance are
excluded from the sample. Elderly families are single individuals at least 65 years old and married or common-law couples with at least one
spouse 65 years old or older, without children. Rates for elderly individuals are computed on income from taxable pension sources.
Source: Authors’ calculations using Statistics Canada’s SPSD/M, v. 18.1. Responsibility for the results and their interpretation lies with the authors. 
5 The base credit, calculated for families and consisting of amounts for age (older than 65), living alone, and eligible pension income, is
reduced at a rate of 15 percent of income past the roughly $31,000 threshold.INDEPENDENT REASONED RELEVANT
e-brief | 6
While family characteristics differ, we can aggregate families within an income class and type, as in Figure 4, to
illustrate common experience. Summarizing: seniors face high METRs at the bottom of the income scale, but generally
not so high as those for low-to-middle-income families with children, who face average METRs above 45 percent mark
on earnings ranging from $20,000 to $60,000. For families without children, the average METR profile is roughly in
line with a simple graduated tax rate system. However, the METR rises quickly and, after incomes exceed about
$20,000, has a profile like that of a flat rate tax. For both seniors and families with children, the half of families whose
income is below the median generally face higher METRs than do the half of families above the median.
The Big Picture Assessment
Averaged across all family types and income levels, federal and Quebec personal income tax relief programs implemented
in 1999 and 2000 have been a success in lowering METRs: the all-in average was 37.4 percent in 2000, whereas it is
32.7 today (Table 1). For the majority of Quebecers, however, average METRs still exceed 40 percent and remain
higher than for their counterparts in other provinces.
For policymakers who focus on the questions that surround targeted benefits, the results bear a mixed message.
That transfers and targeted credits deliver financial benefits is clear, but these benefits come at the expense of
extraordinarily high METRs, reducing the gains from working for many of their beneficiaries. This cautions against
further expansion of the targeted transfer system, for example by expanding low-income supplements or creating new,
targeted benefits. 
Policymakers interested in keeping down METRs overall should focus on a broad tax base and low, flat rates, rather
than implementing or expanding targeted benefits that make general tax relief more difficult to achieve. Table 1: Average Marginal Effective Tax Rates (METRs), all Family Types, by Income Group and Province 
Note: Each income group contains approximately one-fifth of families. Rates are computed on the incremental income earned in employment
for non-elderly families, and on income from taxable pension sources for elderly families. Incremental income is earned by the higher earning
spouse for married or common-law couples. Recipients of social assistance are excluded from the sample. 
Source: Authors calculations using Statistics Canada’s SPSD/M, v. 18.1. Responsibility for the results and their interpretation lies with the authors.
| 7 e-brief
INDEPENDENT REASONED RELEVANT
2011
Family Market Income
Up to
$15,000
$15,001
to $35,000 
$35,001
to $60,000 
$60,001
to $100,000
$100,001
and over
All Families
Province Percent
Newfoundland 26.7 32.2 33.5 35.7 37 .1 33.1
P .E.I. 38.5 32.0 35.8 36.5 39.5 36.1
Nova Scotia 27 .3 32.5 36.5 38.1 41.1 34.9
New Brunswick 31.5 30.5 34.7 34.7 35.7 33.3
Quebec 25.0 35.0 42.1 40.8 42.4 36.6
Ontario 19.5 29.2 35.5 33.9 38.5 31.6
Manitoba 24.9 32.1 36.0 37 .0 40.3 34.1
Saskatchewan 30.1 27 .6 34.4 34.4 36.5 32.8
Alberta 28.9 24.9 34.1 32.9 34.8 31.7
B.C. 19.8 28.2 31.7 30.2 35.0 28.8
Canada 22.9 30.4 36.5 35.1 38.2 32.7
1999
Family Market Income
Up to
$15,000
$15,001
to $35,000 
$35,001
to $60,000 
$60,001
to $100,000
$100,001
and over
All Families
Province Percent
Newfoundland 30.9 36.9 43.5 46.7 49.6 39.7
P .E.I. 37 .5 32.6 40.2 43.8 46.3 38.9
Nova Scotia 27 .8 34.2 42.5 43.4 45.5 37 .9
New Brunswick 27 .9 35.2 42.3 43.4 45.4 37 .8
Quebec 29.8 39.9 50.8 49.7 49.8 43.0
Ontario 25.4 30.4 40.2 40.3 44.0 36.3
Manitoba 29.3 34.2 43.0 45.1 46.6 39.0
Saskatchewan 28.4 37 .0 42.5 44.7 46.6 38.9
Alberta 24.0 30.6 40.4 41.1 42.5 35.7
B.C. 20.5 32.1 41.4 41.5 45.4 35.0
Canada 26.3 33.9 43.4 43.2 45.3 38.0INDEPENDENT REASONED RELEVANT
This e-brief is a publication of the C.D. Howe Institute.
Alexandre Laurin is Associate Director of Research, C.D. Howe Institute.
Finn Poschmann is Vice President, Research, C.D. Howe Institute.
This e-brief is available at www.cdhowe.org.
Permission is granted to reprint this text if the content is not altered and proper attribution is provided.
References
Canada. 2010. “The Response of Individuals to Changes in Marginal Income Tax Rates.” Tax Expenditures and Evaluations. Department 
of Finance.
Davies, James. 1998. “Marginal Tax Rates in Canada: High and Getting Higher.” Toronto: C.D. Howe Institute Commentary. March.
Laurin, Alexandre, and Finn Poschmann. 2011. “What’s My METR? Marginal Effective Tax Rates Are Down – But Not for Everyone: The
Ontario Case.” E-brief. Toronto: C.D. Howe Institute. April.
Poschmann, Finn. 1999. “Growing Child Benefits, Growing Tax Rates.” Toronto: C.D. Howe Institute Backgrounder. February.
Poschmann, Finn, and John Richards. 2000. “How to Lower Taxes and Improve Social Policy: A Case of Eating Your Cake and Having It
Too.” Commentary 138. Toronto: C.D. Howe Institute. February.
e-brief | 8

Growing Child Benefits, Growing Tax Rates.”

How to Lower Taxes and Improve Social Policy: A Case

Marginal Tax Rates in Canada: High and Getting Higher.” Toronto: C.D. Howe Institute Commentary.

The Response of Individuals to Changes in Marginal Income Tax Rates.” Tax Expenditures and Evaluations. Department of Finance.

What’s My METR? Marginal Effective Tax Rates Are Down – But Not for Everyone: The Ontario Case.” E-brief.

What Has Happened to Quebecers’ Marginal Effective Tax Rates?

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What Has Happened to Quebecers’ Marginal Effective Tax Rates?

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