Quebec seeks to block access to non-government online gambling sites

How did you conflate free-speech and gambling? One is the right to express your own thoughts (which doesn't protect you from the repercussions of said expressions) and the other is an easily manipulated system to transfer wealth from those who may not understand to those that only care about more.

Governments were set-up to protect it's population from that type of manipulation...

That being said, the method they are going about it—getting ISPs to do the blocking—is just plain wrong. There are other areas of law and control that should be exerted here, not the weakening of net neutrality.

At the risk of opening a can of worms that might be better to keep sealed, the probable (main) target in this case is offshored Mohawk operations. Damnably difficult to tax, no matter which end of the transaction you're looking at, and all parties (except the servers) are physically inside the province (though it can, and probably should, be argued that the operators are on their own sovereign territory, something that Canada in general and Quebec in particular have historically had problems coming to terms with).

As opposed to requiring IP-based blacklists?

If a resident of Quebec is in debt, it's the province's duty to collect on it. If the province says they will not collect on debts incurred with online gambling, it becomes the gambling site's problem. It's not like the Mounties are going to come collect on credit card charges to a gambling site.

Yes, but it raises barrier of entry.

Furthermore, the proposed firewall will be trivial to bypass with VPN. So that is not exactly fool-proof either.

Same issue. QC says they won't collect on CC charges to a Bitcoin trader. It becomes the Bitcoin site's problem to decide whether to sell BC to QC residents or whether to exclude them.

That still leaves all 3 gambling-addicted bitcoin miners in Quebec, but well, what can you do...