Tax bite hardest on minimum wage earners
Business federation urges P.E.I. government to increase “tax-free” portion of wages
The Canadian Federation of Independent Business is again urging the province to fix “outdated’’ personal income tax rules that don’t account for inflation.
The policy is particularly unfair to minimum wage earners in P.E.I., says the business advocacy group.
“It’s a real frustration for business owners,’’ said Erin McGrath-Gaudet, the group’s director for P.E.I.
“Over the past number of years we’ve seen some significant jumps in minimum wage. It can be a big cost for some businesses but government is the biggest winner because of the increased tax bite on those same workers.’’
Over the past 15 years, notes the federation, the provincial income tax paid by a full-time minimum wage earner on P.E.I. has almost doubled from 3.3 per cent in 2001 to 5.9 per cent when minimum wage moves to $11 an hour in 2016.
While the total tax bill may not seem as dramatic as those at higher incomes, notes the federation, the impact is most disproportionate for minimum wage earners.
The federal government and seven out of 10 provinces address the issue by tying the increase in their tax brackets and the basic personal exemption — the amount individuals are allowed to earn before they start paying taxes — to inflation.
Because P.E.I., in addition to Nova Scotia and Manitoba, doesn’t make the annual adjustment, the purchasing power of the “tax-free’’ amount is eroded and more income gets taxed at higher levels, even if wages aren’t keeping pace with increases in the cost of living. The result of years of this policy, says the CFIB, is that Islanders at every wage category start paying tax before any other Canadian.
The tax-free amount for Islanders is $7,708, compared to the national average of $10,880.
A spokesman for the Department of Finance notes that in 2015 the province increased tax credits for Islanders who need it the most, including seniors, working single parents, and those with lower incomes.