Nova Scotia Premier Tim Houston (left) and P.E.I. Premier Dennis King. Their respective provincial governments are stubbornly refusing to adjust their tax brackets to account for soaring inflation. Photo credit: Twitter and Facebook
Two Atlantic Canadian governments are cashing in on inflation and it’s time for taxpayers to stand up and demand better.
When Canadian taxpayers in most provinces get a cost-of-living pay raise, they also see their tax brackets adjusted to ensure they aren’t penalized for simply keeping up with higher living costs.
But taxpayers in Nova Scotia and Prince Edward Island are punished.
Last year, average hourly wages increased by 5.2 per cent. But inflation rose at an even higher rate of 6.8 per cent.
That means that while the average worker saw wage gains last year, increases in the cost of living wiped out the benefits of all that wage growth, and then some.
But it seems like Nova Scotia Premier Tim Houston and P.E.I. Premier Dennis King simply don’t care about how inflation is impacting taxpayers’ bottom lines.
The governments of Nova Scotia and P.E.I. are stubbornly refusing to adjust their tax brackets to account for soaring inflation. That means taxpayers will be pushed into higher tax brackets even though they’re not earning more.
That’s what economists call bracket creep.
The Canadian Taxpayers Federation releases a report every year to warn Canadians of tax changes in store for the new year.
One of the biggest warnings in this year’s report was aimed at Nova Scotia and P.E.I. taxpayers.
Thanks to the Houston and King governments refusing to adjust tax brackets with inflation, Nova Scotians and Islanders could be paying up to an extra $653 and $263 in income taxes respectively in 2023. And that’s all thanks to bracket creep.
A taxpayer living in Nova Scotia and earning $60,000 will see their provincial income taxes raised by $244 because of bracket creep. Yet that same taxpayer is also confronting soaring food, gas and utility prices.
While prices spike, government is taking more and asking taxpayers to do with less. Does that sound like fairness for taxpayers?
If that same Nova Scotia taxpayer was living in neighbouring New Brunswick, they wouldn’t have seen their provincial income taxes go up at all. In fact, New Brunswick taxpayers are actually seeing income taxes go down, with a major income tax cut announced by Premier Blaine Higgs late last year.
The very same taxpayer earning $60,000 who saw their income taxes go up in Nova Scotia by $244 would have instead seen a $132 tax cut in New Brunswick.
Between the tax hike in Nova Scotia and the tax cut in New Brunswick, that’s a gap in tax changes in a single year of $376. For a top income earner, the gap widens to $1,434.
Here’s another way to think through the impact of bracket creep. Nova Scotia’s income tax regime was last changed in 2000. A taxpayer who earned $35,000 in Nova Scotia in 2000 was paying 6.4 per cent of their income in provincial income taxes. But if that very same taxpayer simply received cost-of-living pay hikes, the share of their income the provincial taxman takes would have increased to 8.6 per cent by 2022. That more than a 33 per cent increase in provincial income taxes paid.
It’s time for politicians in Nova Scotia and P.E.I. to stop profiting off of inflation. Provincial governments are already getting more revenue through sales taxes, because when prices go up, so too does sales tax revenue. It’s completely unfair to profit off of inflation by biting further into workers’ paycheques too.
Premiers Houston and King need to act. If ever there was an urgent time to eliminate bracket creep, it’s now. High inflation is making bracket creep more punishing than it’s been in decades.
Bracket creep needs to be relegated to the ash heap of history.
Jay Goldberg is the Ontario Director at the Canadian Taxpayers Federation. He previously served as a policy fellow at the Munk School of Public Policy and Global Affairs. Jay holds a Ph.D. in Political Science from the University of Toronto.