Even at the best of times, asking federal Finance Minister Allan MacEachen a question is a bit like playing Ping-Pong with a ghost. Nothing ever comes back—at least nothing solid. But these days—a few weeks before the government’s budget is released—the dour minister is being even more opaque than usual as a shroud of pre-budget secrecy descends on the capital. Little wonder that MacEachen is lying low—the economic news for taxpayers is almost bound to be bad.
In fact, debate in Ottawa doesn’t centre on whether or not to raise taxes, but on the best way of doing it—directly, through selective or comprehensive taxrate increases; or indirectly, by deindexing personal income tax. It is this last proposal that has excited most controversy—it is seen as a dishonest, pernicious, back-door grab that, as usual, hits the little guy the hardest. If the
Liberals do drop indexing—originally introduced in 1974 to protect taxpayers from the ravages of inflation—most average citizens will pay up to a couple of hundred dollars more in federal tax. Last Saturday, Joe Clark’s Tories—in desperate need of an issue to get them back on the television news—launched an advertising campaign to fight deindexing. The newspaper ads point out that someone earning $15,000 a year will pay an extra $217 in taxes in 1980 if indexing is dropped.
The government estimates it could
pick up an extra $1.5 billion in taxes this year by de-indexing—an attractive temptation in the light of continuing uncertainty about energy tax proposals. When the idea was first floated last June—by Prime Minister Pierre Trudeau among others—it drew instant and widespread criticism. But as late as last week there were no Liberal spokesmen willing to pronounce the idea dead, and many others who, like ruined gamblers at a payout wicket wearing expressions of controlled desperation, appeared capable of anything.
Indexing was originally promoted on Parliament Hill by Tory Robert Stanfield, but introduced by the Liberals in 1974 as a means of eliminating a Catch22 in the tax system that hit low-income earners particularly hard. If a worker got an eight-per-cent salary increase, for instance, it might let him keep up with the inflation rate. But the raise would also bump him into a higher tax bracket so he’d pay more taxes, even though his real earning power hadn’t increased at all. Inflation would be getting him from both sides: spiralling
prices and his tax bill. With indexing, basic exemptions are increased each year according to the cost of living, and tax tables are also adjusted.
Businessmen like the scheme because they say it discourages governments from profiting from inflation. Without indexing, the feds would have scooped an estimated extra $8 billion in revenues over the past six years. Tax experts have almost unanimously condemned threats to de-index: “It would be the most retrogressive step in Canadian taxation in 25 years,” said Robert
Brown, senior tax partner with Price Waterhouse & Co. University of Toronto economics professor John Bossons agrees: “It would hit low-income people the hardest. The government hopes the public is too dumb to notice; we can’t let them get away with this.” For Allan MacEachen, the wisest step would be to attend to his own mail. His office says there has been more public response on this issue than any other since he became finance minister. The overwhelming message: “Don’t de-index.” Susan Riley
The story you want is part of the Maclean’s Archives. To access it, log in here or sign up for your free 30-day trial.
Experience anything and everything Maclean's has ever published — over 3,500 issues and 150,000 articles, images and advertisements — since 1905. Browse on your own, or explore our curated collections and timely recommendations.WATCH THIS VIDEO for highlights of everything the Maclean's Archives has to offer.