The crippling burden of taxes on low income earners

The Manitoba PC party introduced their Alternative Throne speech on Friday. There was one promise in there that really got me thinking. They promise to increase the Basic Personal Exemption (BPE). This is the amount of money you are able to earn before you start paying provincial income tax. This is something I believe Manitoba is really lagging behind the rest of Canada on. I find this really shocking considering that we have an NDP government; as one would expect that we would have a lesser tax burden on low income earners. Progressive tax policy would reduce the tax burden on low income earners, as this would leave more money in the pockets of low income earners and help address issues such as high chid poverty rates, high use of food banks by home owners, etc.

But BPE is just one component of basic taxation. How does Manitoba stack in when compared to the rest of Canada? We often sees  a $40,000 earner used as an example when talking about taxation. But what about those that taxation proportionally hits the hardest? What about the effect on those that earn only minimum wage?

I have pulled some numbers to see where we currently stand:

current-2

While many complain about our minimum wage being high, it’s not out of line with the rest of Canada, but what’s really interesting is the lowest bracket rate and the BPE.

While our minimum wage is the 3rd highest in Canada, and our low bracket rate is the 3rd highest in the country, look at how low our BPE is. In fact because of the combined effect of the low BPE and the high rate in the lowest bracket, minimum wage earners in Manitoba are paying more tax than minimum wage earners in provinces that have a lower BPE. Paying more tax than any province except Quebec.  Let’s take a look at how we compare to SK: We have a $0.50 higher minimum wage, which results in a $1040.00 higher gross pay, but let’s look at the tax differential – after tax the difference is only $215. That means $825 of that $1040 goes right to provincial income tax differential. Put another way, that’s $0.40/hr that’s eaten up by tax differential.

But the really interesting numbers are the real tax rate, which is tax rate adjusted by BPE. Look at how out of sync Manitoba is with the rest of Canada – 6.5%. Only Quebec is higher. Look at BPE as a % of gross pay and that number is also disturbingly low. What that means is that a minimum wage earner in AB is paying tax on only 20.8% of their income, while in Manitoba they’re paying tax on 60.1% of their income.

So how has this changed since ’99 ( that’s the benchmark our provincial gov’t seems to use for everything, so let’s go there)?

We have to remember though, that it’s not really an apples to apples comparison since Tax On Net Income (TONI) had not been introduced at that time and provinces did not have a BPE that was distinct from the federal BPE. Taxes were calculated as a percentage of the federal tax rate. What do those numbers look like?

1999

So a few interesting number to be had here. First, if anyone tells you a minimum wage earner pays less tax now than in 1999, you can tell them they’re incorrect. The rate is less than it was, as well as at the tax payable.

We’re a rank a little further back (3 vs 4) in gross income and after tax income (3 vs 5). But let’s look at the real tax rate and BPE as a %. Our real tax rate is 3.76% vs 6.49% and our BPE % is 54.4% . The last is really interesting. In 1999 we were close to other provinces, but we’re the only province west of the Maritimes to see the BPE as a percentage of income drop.  It’s also not a small drop, it’s a pretty substantial drop. In ’99 a minimum wage earner paid tax on 45% of their earnings. Now? 60%.

It would be one thing if the BPE was low and we had a tax rate similar to Ontario or BC. In fact a 5% lowest bracket rate would keep minimum wage earners as the 3rd highest after prov tax income in Canada and make the real tax rate a more acceptable 3%. A change in only the BPE to the average of the 3 other western provinces and Ontario would again keep Manitoba as the third highest after prov income tax in Canada.

But the combination of the two means minimum wage earners in Manitoba pay the second highest provincial taxes in Canada, have the second highest real tax rate, and are taxed on more of their income than any other province except PEI and Nova Scotia.

In a way, this shows excess tax revenue being collected from minimum wage earners in Manitoba. If our government is really serious about making life better for the working poor in Manitoba, they’ll address this gap that has been growing ever since 1999. Reducing the provincial tax burden on low income earners would help address our highest in Canada child poverty and food bank usage figures. They’ve had since 1999 to address this, but instead, by cutting business tax rates, introducing a senior’s school tax rebate, increasing PST, etc., they’ve placed more of the tax burden on minimum wage earners.

An immediate $2500 increase to the BPE is the minimum that should be implemented along with a decrease to the lowest rate. A real, tangible adjustment though, would be moving the BPE to minimum wage, and setting up additional tax brackets with smaller increases between each.  I’m not optimistic that this will happen anytime soon though. Its easier to say you support minimum wage earners and then place an oppressive tax burden on them.

 

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Quantifying the effect of MB Infrastructure spending

So anyone who follows me on twitter has seen that I have been debating back and forth with my NDP MLA about the effect of the MB government infrastructure spending on the provincial unemployment rate and how it compares to other provinces.

My position is that unemployment is driven more by the nature of a province’s economy and global factors as opposed to direct government investments, policy or the political party in power. To support my argument I have provided historical unemployment rate data ( below) that shows Manitoba’s comparative position hasn’t really shifted too much over the last 25 years. It usually falls between 2nd and 4th in Canada. I’ve also pointed to more detailed Stats Can data beyond government news releases and press clippings which shows that our current position is more of a result of other provinces falling off than Manitoba doing better.

Historical Unemployment Rates by Province:

unemply history

Note that MB position since 1976 is between 2nd and 4th

My MLA’s argument is that the PST infrastructure spending is driving the increase in MB’s comparative unemployment position. To support his argument he states that the gov’t is spending lots of money on infrastructure.

But what if we could quantify the effect of the provincial government infrastructure spending? What if we were able to see exactly what the effect of this infrastructure spending on unemployment is?

I think we can.

Using some documents I’ve pulled from the provincial government website and stats can data, we can see the effect of the provincial infrastructure spending on Manitoba’s unemployment rate.

The provincial government has a couple of Conference Board of Canada reports on their website. Here’s the initial one that purports to show the effect of the PST infrastructure spending. Now, I’m going to assume their methodology in calculating the effect on an annual basis is correct, but that’s a huge stretch since the application of the methodology is so deeply flawed. I’d be embarrassed to work for the Conference Board putting out material like this. The report assumes each year on a stand alone and then adds them. But that’s not correct. It’s essentially quintupled the effect, and also neglected to factor in prior spending.

So this graphic?

58900 jobs

It’s not 58,900 jobs, it’s actually less than 4,000. But more on that later.

But lets just assume their behind the report calculations are correct, even if the application is so deeply flawed.Let’s look at the Conference Board’s report on 2013-2014 infrastructure spending.

Specifically, lets look at table 2 from page 6:

Table 2
Now, note the 1st line, we can link that to another publication in a few minutes. Lets just look at the 1st line and the employment line. This indicates that for $844M in spending, 8,200 jobs are created. Or $102,926.83 per job created. Let’s just save that for later.
Now lets look at another document from the same site. Lets look at the 2014/2015 annual report on infrastructure spending put out by the provincial gov’t.
In this case, lets look at the 5 year spending plan from page 7:
5 yr plan
First, note the planned investment of $844M, that links to our earlier Conference Board of Canada document. So we’re looking at comparable data here. But we have to do some major restatement of the data as listed to correct for flaws in the data:

The base funding level for each year seems to be the 2012/13 base. But that doesn’t factor in inflation or any annual increase to the baseline that would have occurred without PST spending. So we’ll go and adjust the base by 2.5% per year. and remember that’s an incremental amount, not just increase each year by 2.5%. Our adjusted numbers now look like this:

Adjust 1

Quite a change, isn’t it? But we want to look at incremental PST funding. That’s PST spending above what would otherwise be spent. Put another way, Planned investment less the restated base 2012-2013. Those numbers look like this:

adjust 2

The highlighted numbers are the incremental PST spending per year based on a reasonable 2.5% increase to base funding each year. Now those numbers are on a stand alone year by year basis. We also need to look at the year over year change. This is important – if you’re hired to work on a job over 5 years are you one job or 5? The above numbers reflect each year as being a separate job. So let’s look at the incremental PST spending change from year to year:

adjust 4

So now we know an adjusted amount and how much that increases year over year. The increases from year to year are what we need to calculate additional jobs. Now remember back to the 1st document  we looked at? Where we calculated this: “Or $102,926.83 per job created. ” We can apply that rate to the above numbers to come up with the following:

adjust 5

So 2,550 jobs created to-date due to MB Gov’t PST spending. Okay, we’re close to the end of this now!

Let’s go back to that 1st table though:

Table 2

 It also states that for $844 million in spending, the labour force increases by 3,800. That 3,800 is 46% of 8,200 listed employment. Those are jobs taken by people from outside the province and are not jobs for unemployed Manitobans.
Now that we have our total on jobs created to-date, let’s look at the Stats Can unemployment data for October 2015:
cansim
Okay, now that we have all that data, lets put it into this and see what happens. We’ll use October. Note that the above numbers are in thousands.
We have 2,550 jobs from PST spending and 46.3% of those or 1,173 are people moving to Manitoba to work. That’s a net 1.327 jobs to date from MB PST infrastructure spending.
So if we back out those numbers we see what would be without MB infrastructure spending:

Labour Force decreases from 678,000 to 676,827

Employment decreases from 641,800 to 639,250

Unemployment therefore is 676,827- 639,250 = 37,577

Unemployment rate is 37,577 / 676,827 = 5.5%

So there you have it. The effect of MB PST infrastructure spending on unemployment:  0.2%

And since Saskatchewan’s unemployment rate in October is 5.6%, the effect of MB Gov’t PST infrastructure spending on unemployment position relative to rest of Canada? Nothing. Still #1 regardless.

So much for the argument that infrastructure spending is driving Manitoba’s #1 unemployment position.