Houston overstates budget’s true impact
Government trumpets tax cut without actually cutting taxes
The Nova Scotia government released its provincial budget last month with promises to hike spending, run ongoing deficits and substantially increase provincial debt.
But there was some good news: the government plans to index personal income tax brackets on a yearly basis with inflation.
The governing PC party frames this move as the “largest tax cut in Nova Scotia’s history,” with some in the media calling it a “historic tax cut.”
BRACKET CREEP
While it’s certainly welcome news, it’s not a tax cut. And it does not meaningfully change Nova Scotia’s overall tax problem. To understand why, let’s first examine what indexing actually does.
For years, Nova Scotia has been among a minority of provinces that do not fully adjust their personal income tax brackets to account for inflation on a yearly basis, creating a phenomenon known as “bracket creep” (brackets being the range of income where an individual pays a given rate of income tax), which is essentially a hidden tax hike.
Most other provinces and the federal government adjust these brackets annually based on inflation, so people aren’t pushed into higher tax brackets simply because they receive a salary adjustment that merely keeps pace with changes in the cost of living.
After the Nova Scotia government adjusts tax brackets for inflation on a yearly basis, Nova Scotians will have the same amount of inflation-adjusted income in their pockets on a yearly basis, rather than incurring this hidden tax hike. But again, while this is good news for many Nova Scotians, it’s not a tax cut.
UNCOMPETITIVE RATES
Looking at the bigger picture, the budget from Premier Tim Houston’s government did not meaningfully address Nova Scotia’s overall tax problem.
The province remains among the highest-taxed jurisdictions in North America. According to a recent study, which measured tax competitiveness across all 61 Canadian provinces and U.S. states (including D.C.), Nova Scotia had the second-highest marginal tax rate on personal income for workers who made $50,000, the third-highest for workers who made $75,000 and the highest tax rate for those earning more than $150,000 (at 50-54 per cent of income).
In other words, bracket creep was only one of many ways Nova Scotia is uncompetitive with its peers when it comes to personal income taxes.
It’s no surprise Finance Minister Allan Macmaster said the “No. 1 ask by Nova Scotians in the pre-budget consultation was for tax relief.”
According to the government, indexation is expected to save individuals $69 to $259 per person in the coming fiscal year. However, workers in Nova Scotia who earn between $60,000 and $100,000 per year pay between $6,416 and $13,142 per year in provincial income taxes. Clearly, workers in the province would welcome a true tax cut.
PROBLEMS REMAIN
As for the “historic” nature of the indexing move, various governments in the past have made tweaks to Nova Scotia’s tax system including adjusted tax brackets (stopping short of full indexation) and reduced taxes on a small range of lowincome earners.
The Houston government is the first to fully index tax brackets, for which it deserves credit. But none of these governments have dealt with Nova Scotia’s overall tax competitiveness problem.
The Houston government made this move during a time of runaway spending, ongoing deficits and rising debt, which helps to ensure that more substantial tax relief is a long way off for Nova Scotians who call it a No. 1 priority.
With this budget, the government had an opportunity to restrain spending and improve the province’s finances and position itself for serious tax relief going forward. It failed to take advantage of that opportunity, which is the government’s prerogative.
However, trumpeting the “largest tax cut in Nova Scotia’s history” when it’s neither historic nor a true tax cut is quite a stretch, particularly given that the true problem remains unsolved.