For many workers, earning more doesn’t pay

Millions of Canadians, on average, lose $341 for each $1,000 wage boost

OTTAWA— Newly released documents show Finance Department officials calculated that workers near the bottom of the income ladder are dinged hardest for extra earnings than anybody else, including those at the top.

Besides paying more tax, making more money can mean losing other benefits aimed at alleviating poverty.

Understanding who loses more from earning more, and what federal programs are involved“can guide the development of approaches to ease the burden … and encourage additional work,” officials wrote in the documents.

Workers with modest incomes, between about $25,000 and $34,000, lost $413 for every $1,000 in extra earnings, the highest clawback of any income level.

Just behind them were the top 10 per cent of workers, with incomes over $114,570, who gave up $402 for every $1,000 of additional earnings.

Paying more in taxes was the culprit for those making the most, while those near the bottom faced a double-whammy of taxes and drops in income-tested benefits, such as the Canada Child Benefit.

Overall, the country’s 19 million workers would have lost, on average, $341 for each $1,000 boost in their earnings based on the 2017 data the paper relied on, but the burden was heavier for workers with children.

Officials noted that being not much better off, or faring even worse, after a boost in earnings could be a disincentive for taking extra work for those employed, and could keep others out of the job market.

The latter situation was one the documents describe as particularly pronounced for “secondary earners.” Those are people who make less money than their partners — usually women.

The reports delivered in early November, days after the federal election that saw the Liberals returned to power with a minority in the House of Commons, came as the public service was trying to solve a suite of issues facing an aging workforce.

Elliot Hughes, who was a taxpolicy adviser to former finance minister Bill Morneau, said a sweeping review of the tax system seems like a must to see how the country can make sure those who need support get it, while also not creating disincentives to work.

It’s politically problematic, and likely would take two years to get done, Hughes said, but “I don’t know how you avoid one now.”