There was a time when the stub from a paycheque told the tax story. By far the biggest bite came in the form of income taxes, both federal and provincial, that were marked clearly on many pay slips. Other taxes were incidental by comparison. But four years of Conservative government and five budgets under Finance Minister Michael Wilson have brought a pronounced shift toward taxes on consumption—on money spent rather than money earned. Last week, Wilson ignored the pleas of consumer and welfare groups and raised hidden taxes on everything from gasoline to laundry soap to plywood. Said Ruth Robinson, president of the Consumers’ Association of Canada: “The government is waging its crusade against the deficit on the backs of consumers. This budget amounts to a staggering consumption tax grab.’’
The budget did, indeed, increase the income taxes that most working Canadians will pay over the next two years, as illustrated in the accompanying tables showing the effects on some typical incomes. But higher consumption taxes will add another $200 to $500 to most families’ tax bills—more, in most cases, than the extra income taxes announced by Wilson. Wilson also said that some pension and family allowance payments will be taxed back for people earning $50,000 or more. And he increased premiums that workers— and employers—pay for unemployment insurance, a move that will cost people earning $33,000 a year or more about $72. But the key changes will show up in higher prices at cash registers and gas pumps.
Penalize: Wilson has steadily raised consumption taxes in each of his budgets, despite complaints from consumer groups and welfare advocates that such taxes penalize the poor. Wilson has clearly been unmoved by those arguments. Last week, he confirmed that on Jan. 1, 1991, Canadians will begin paying a nine-per-cent goods and services tax on almost everything but food, rent, health care and education. In a province such as Newfoundland, which already has a 12-per-cent provincial sales tax, the effect would be to add 21 per cent to the price of most goods at the point of purchase. And there were no guarantees that the federal tax would stay at nine per cent. Said John Bulloch, president of the Canadian Federation of Independent Business: “This is only the beginning of the tax grab. They will put in
Tables produced by the Society of Management Accountants budget analysis team
the sales tax at nine per cent and push it up to 12 before you know it.’’
In the meantime, Canadians faced other tax increases that went into effect immediately last week. Wilson increased the surcharge on income taxes to five per cent from three, then
O I SINGLE PARENT Working mother who earns $19,449; with two young children; living in Nova Scotia 1988 1989 1990 Income 19,449 19,449 19,449 (Minus Child Care) -5,000 -5,000 -5,000 Taxable Income 14,449 14,449 14,449 Federal Tax 2,530 2,554 2,579 (Minus Tax Credits) -3,294 -3,354 -3,434 Provincial Tax 368 368 368 Tax Payable -396 -432 -487 Rebates are higher because the increase in the federal sales tax credit exceeds the increase in the surtax.
put an additional charge of three per cent on tax payable on income above $70,000. For lowand middle-income workers, those income tax increases will have a minimal impact. And even for high-income earners, the immediate impact may not be devastating. The tables on these pages, calculated for Maclean ’s by Saskatoon accountant Barry Allcock, a member of the Society of Management Accountants, show that a family of five in Quebec with an income of $35,719 would pay an extra $59 this year and $117 in 1990. A working mother bringing up two children on her own in Nova Scotia on an income of $19,449 would get slightly larger rebates from the government over the next two years. But a wealthy real estate developer in Saskatoon with income of $857,000 would pay an extra $4,485 this year and $8,970 in 1990.
But the income tax calculations tell only part of the story. For almost everyone with incomes below $100,000, the biggest factors in last week’s bud-
get were higher taxes on consumption.
Wilson added $4 to each carton of cigarettes and one cent to every litre of gasoline. And he hiked hidden taxes on everything from roofing nails to telephone service. The costs are difficult to determine because they depend on spending patterns over the course of the year. But Ottawa social policy consultant Richard Shillington estimated that a family of four with an income of $30,000 will pay an extra $255 this year in consumption taxes and $395 in 1990. By comparison, the higher income tax surcharge will cost the same family just $60 in 1990.
Credit: And such a family will get no help from Ottawa’s refundable tax credits to soften the new tax blow.
Wilson introduced the credit system in 1986 to offset the impact of consumption taxes on the poor. The full credit goes only to families with incomes under $16,000, and is gradually reduced for higher incomes. Wilson said that he would raise the threshold to $18,000 and the credit to $100 from $70 this year and to $140 in 1990 for each adult, and from $35 to $50 this year and $70 in 1990 for each child under 19. According to Allcock’s calculations for the single mother in Halifax, the increases would mean an extra tax rebate of $36 this year and $91 in 1990.
But critics complained that the tax credit helps only the poorest of the poor. Finance department officials estimated that the breakeven point—where the refundable credits equal the money paid out in consumption taxes—is on an income of $21,000 for a family of
*fe Self-employed HIGH INCOME real estate developer who earns $857,000; married with two children; living in Saskatchewan 1988 1989 1990 Employment Income 857,000 857,000 857,000 Dividends 8,000 8,000 8,000 Other Income (Interest, Etc.) 24,277 24,277 24,277 (Resource Deductions) -250,000 -250,000 -250,000 Total Family Income 639,277 639,277 639,277 (Minus Registered Savings Plan Payments) -7,500 -7,500 -7,500 Taxable Income 631,777 631,777 631,777 Federal Tax 184,431 188,916 193,401 (Minus Tax Credits) -3,068 -3,068 -3,068 Provincial Tax 96,812 96,812 96,812 Tax Payable 278,175 282,660 287,145 Increases are due to the increased federal surtax, the high-income surtax and the repayment of family allowance.
four with two children under 19. As a result, thousands of families with modest incomes will pay more overall in taxes. Said Havi Echenberg, executive director of the National AntiPoverty Organization: “People making less than $15,000 have done not too badly because of the sales tax credit. But the people making $25,000 or $30,000 have been hit hard.”
Echenberg added that any form of consumption tax is inherently regressive—everyone pays the same rate of tax, regardless of income—because it affects the poor more than the rich. She said that a progressive income tax—the greater the income, the higher the percentage taken in tax—is fairer. For his part, Shillington added that consumption taxes have a built-in bias against people with children. Such people tend to be bigger consumers, and that means they pay more consumption taxes.
Price: But Wilson said last week that he is determined to design the new goods and services tax so that families with incomes below $30,000 will in fact be better off than under the present system. The proposed tax, he said, will raise enough money to replace the current 8to 18-per-cent federal sales taxes on manufactured and processed goods—imposed at the wholesale level and hidden in the retail price—and to reduce income tax rates and raise the refundable tax credit.
After previous budgets, because the federal sales tax was hidden, Wilson received little political criticism for increases in consumption taxes. Said Shillington: “People get a vague idea that prices are going up but they haven’t really made the connection. And the Conservatives haven’t paid much of a political price.” But that could change in the fall, when Wilson introduces legislation to Parliament for the largest consumption tax in the country’s history.
MARC CLARK in Ottawa
O o AVERAGE INCOME A teacher earning $31,880, whose wife earns $2,675 doing part-time work; with three children; living in Quebec 1988 1989 1990 Employment Income 34,555 34,555 34,555 Other Income 1,164 1,164 1,164 Taxable Income 35,719 35,719 35,719 Federal Tax 5,029 5,088 5,146 (Minus Tax Credits) -2,860 -2,860 -2,860 Provincial Tax 2,228 2,228 2,228 Tax Payable 4,397 4,456 4,514 Increases are due to the increased federal surtax.
j|j^ CAREER COUPLE Salaried executive and self-employed professional who earn $103,697; with one child; living in British Columbia 1988 1989 1990 Employment Income 103,697 103,697 103,697 Interest and Other Income 3,276 3,276 3,276 Total Family Income 106,973 106,973 106,973 (Minus Registered Savings Plan Payments) -11,000 -11,000 -11,000 Taxable Income 95,973 95,973 95,973 Federal Tax 20,763 21,093 21,424 (Minus Tax Credits) -2,626 -2,626 -2,626 Provincial Tax 9,029 9,029 9,029 Tax Payable 27,166 27,496 27,827 Increases are due to the increased federal surtax.
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