Canada

Taxing times in Ottawa

Payroll deductions are on their way up, not down

Mary Janigan November 29 1999
Canada

Taxing times in Ottawa

Payroll deductions are on their way up, not down

Mary Janigan November 29 1999

Taxing times in Ottawa

Canada

Payroll deductions are on their way up, not down

Mary Janigan

He knows his remarks may be colourful—for an economist—but David Perry cant resist. The scholarly senior research associate at the Canadian Tax Foundation, normally a restrained soul, has just figured out what will happen to the take-home pay of a single taxpayer earning $39,000 per year when the clock chimes midnight at New Years. At the request of Macleans, he has calculated the changes to Canada Pension Plan and Employment Insurance

Finance Minister Paul Martin has talked the good talk about tax cuts—last month alone, he bragged that he has reduced the tax burden of Canadians “by some 10 per cent.” But most taxpayers are

premiums—which are a tad below their maximum at this salary level. Then he balanced that figure against what happens to personal income taxes. Guess what? The change comes to $31.41 per year. More. “That’s one less trip to McDonald’s,” Perry says with a gleeful chortle, adding remorselessly that this does not even take into account the effect of inflation on Ottawa’s tax brackets and credits. “Sure, that’s a trivial amount spread over a year,” he says, “but it is going in the wrong direction.”

going to pay more to Ottawa on New Year’s Day. From a politician’s point of view, the optics are even worse. Wealthier taxpayers will see some relief: a single taxpayer earning $59,000 will save $105.36 in federal taxes. But middle-income taxpayers will lose slightly. And because lower-income taxpayers already received most of their tax cut last January, they will also pay more: a single taxpayer earning $ 19,000 will fork out an extra $26.28 to Ottawa.

How did Martin get into the position of ushering in the millennium with tax increases for most Canadian workers? He doled out most of his tax breaks to lowerand lower-middle-income Canadians last January. Over the past three budgets, Martin asserts, he has reduced what would have been the government’s take from personal income taxes in 1999-2000 by $7.5 billion. (Martin’s claims are already controversial because that amount includes more than $2 billion that is being collected from all taxpayers— and then redistributed to lowand middleincome families with children.) But Canadian workers must balance those income-tax breaks against a whopping increase in payroll taxes. And they must also take into account the insidious effects of inflation. “The bottom line,” says Ken Battle, president of the Caledon Institute of Social Policy, “is that there have got to be bigger tax cuts ahead. What we have had so far is very, very modest.”

The general tax cuts began in 1998 when Martin added $500 to the basic personal income tax credit for lowand lower-middle-income taxpayers. Last February, he extended that $500 credit to all taxpayers—and then added an extra $175 across the board. As a result, the total

credit is now $7,131 for everyone. But the measures that Martin introduced last February only took effect on July 1. It is only on New Year’s Day that the full credit will apply to everybody. Wealthier Canadians will finally benefit from their full $675 increase. Lower-income Canadians—who have already seen the effects of the $500 increase on their 1999 incomes—will get the full benefit of the extra $175.

Then, there is the three-per-cent surtax on basic federal tax. In 1998, Martin eliminated it for taxpayers with incomes under $50,000—and pared it back for those with incomes between $50,000 and $65,000. (Perrys sample taxpayer with $39,000 in income saved $188 this year because of that break.) Last February, Martin abolished that surtax for everyone—effective July 1. So about 2.7 million taxpayers who earn more than $50,000 per year will feel the full effect of that measure on Jan. 1. (That taxpayer earning $59,000 would keep an extra $140.)

But everybody will be hit by the hike in payroll taxes. El premiums will decline: the tab for employees drops to $2.40 from $2.55 per $100 ofinsurable

earnings, so the maximum premium

will slip to $936.50 from $995. (It was $1,271 in 1995.) But CPP premiums are headed in the other direction: the maximum will go to $1,388 from $1,187. (In 1995, they were $851; in

2005, they will be $2,238.)

On top of that, taxpayers must take account of the ravages of inflation. Since 1986, tax brackets and credits have increased only when inflation exceeded three per cent—and only by the amount that exceeded three per cent. Since 1992, they have not budged. The Caledon Institute estimates that Canadians are paying almost $ 11 billion in extra taxes this year—simply because credits and brackets have not risen to keep pace with inflation. Since it would cost at least $900 million to reintroduce indexation in 2000, that constitutes another insidious tax hike. “Taxpayers are still losing ground,” asserts Walter Robinson, federal director of the Canadian Taxpayers Federation. “And they should demand real relief.” EDI