CPP scrutinizes tax credits for tax-advantaged funds

February 26, 2025

According to a study by the HEC Montréal Centre for Productivity and Prosperity – Walter J. Somers Foundation (CPP), income tax credits for Quebec’s tax-advantaged funds are a costly government policy that can no longer be justified.

The co-authors of this study are Jonathan Deslauriers, Robert Gagné and Jonathan Paré, Executive Director, Director and Research Professional of the CPP, respectively. They built upon tax data from thousands of Quebec firms to assess the effectiveness of fiscal policy relating to income tax credits for tax-advantaged funds.

 

“The government is stubbornly applying tax strategies based on the needs of another era. On average, the Quebec government gave up revenue of approximately $156 million a year to finance the credit for contributions to labour-sponsored funds between 2012 and 2019, meaning an average cost of $45,594 for each job created. Given that job creation hasn’t been an economic development concern for at least 10 years, this is obviously a disproportionate expenditure.”

Three funds are affected by this type of tax credit in Quebec: Fondaction (CSN), Fonds de solidarité FTQ, and Capital régional et coopératif Desjardins (CRCD).

Although the fiscal policy that supported the creation of these funds achieved its objectives in terms of job creation, the authors of the study conclude that its impact on tax revenues does not even partially offset the related tax expenditure.

“It takes an average of 15 years for the government to recover the tax expenditure committed to finance a round of investment. And even then, a large part of the amount recovered in taxes would be financed by increased contributions to the Health Services Fund associated with the jobs created, which assumes that these jobs could not have been created without the help of the funds. Although we know that the policy is not intended to increase tax revenue, maintaining these associated credits for purposes of economic development seems hard to justify.”

The study by CPP is the result of a mandate entrusted to it by the Ministère des Finances du Québec. This is part of a broader process initiated in 2024 by the Quebec government, with the aim of reviewing all tax and budgetary expenditures and submitting a plan to restore fiscal balance.

View the full CPP study (in French only)