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Lighter Wallet? Low Wages, Not High Taxes, To Blame

Analysts say 'bracket creep' much less of a concern than stagnant wages

by Ben Sichel

Source: Flickr.com
Source: Flickr.com

Nova Scotians are going to feel their belts get a little bit tighter in the new year.

But according to some experts, stagnant wages – and not tax increases – are to blame.

“[P]eople can't make ends meet because wages are too low in this province,” said Christine Saulnier of the Canadian Centre for Policy Alternatives (CCPA) - Nova Scotia office.

Saulnier pointed to a recent study released by the Atlantic Provinces Economic Council that showed that Atlantic Canada created four times as many low-wage jobs (defined as jobs paying less than $40,000 a year) than high-wage jobs in the past decade.

Saulnier also noted that Canadians’ real purchasing power is down – average yearly wages increased by 2.7% in the past year, slightly less than the inflation rate of 3%.

In Nova Scotia, the plunge was extreme: wages increased by just 0.4%, while inflation was higher than the national average at 4% – meaning that buying power actually fell 3.6%, points out Larry Haiven, professor of management at St. Mary’s University.

“The average Canadian earned 15.8% more than the average Bluenoser,” Haiven said.

However, says Saulnier, calls to reduce personal taxes as a means of easing Nova Scotians’ financial woes are wrong-headed.

“Cutting taxes by adjusting for inflation or raising the personal exemption or otherwise tinkering with the progressive tax system (making it less progressive), is not the answer,” she said.

Saulnier was responding to recent comments from anti-tax activists like Kevin Lacey of the Canadian Taxpayers Federation about “bracket creep,” the phenomenon whereby workers receive wage increases tied to inflation, but then enter a higher income tax bracket as a result.

Lacey suggested that income tax brackets be indexed to inflation to keep workers in lower tax brackets.

However, says Saulnier, “any such initiatives that are across the board benefit the wealthiest the most… Adjusting for inflation would not benefit those who are far under the bottom tax rate – the same people who need it the most and those who are the most likely to spend it thus stimulating the economy.”

(At a recent public lecture organized by the CCPA, tax specialist Neil Brooks of Osgoode Hall Law School noted that Nova Scotia currently has the most progressive income tax system in Canada, meaning that the highest-income earners are taxed at a higher rate.)

Low wages, and consequent low tax revenues, are also a reason why “the government struggles to pay for needed services” in Nova Scotia, Saulnier says.

“Plus, given how little workers have actually seen their wages increase, I am not sure who we are worried about moving into a higher tax bracket.” 

Larry Haiven acknowledges that “as real earnings drop, a cut in taxes starts to look good.”

But tax reductions are low-hanging fruit that fail to get to the crux of the problem, Haiven says.

“[P]eople don’t immediately think ‘what services will I lose?’”

In 2008 Haiven co-authored a study with Mathieu Dufour that suggested that rising inequality should be of far greater concern than tax increases to Nova Scotians struggling to make ends meet.

Governments “have been cutting taxes frenetically, frantically, for the past 25 years... Governments across Canada are taking in about $250 billion less than they did 15 years ago,” Haiven told the Media Co-op in 2009.

And while Nova Scotia’s economy grew by 62% between 1981 and 2006, says the report, average weekly earnings actually declined 5%.

“Where is that money going? It’s obviously going into the hands of a few,” Haiven said.

The CCPA’s national office recently released its annual report on compensation of the 100 richest CEOs in Canada, who last year saw a 27% increase in their average earnings from the previous year. The report notes that this means Canada’s top CEOs made 189 times more than the average worker, and by 12:00 noon on January 3rd had earned as much as the average worker’s annual salary.

Saulnier says her office will be publishing an analysis of the most recent data on Nova Scotia’s income inequality in the new year.


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