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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