January 25, 2012

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

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

by Ben Sichel

The Dominion - http://www.dominionpaper.ca

HALIFAX—Nova Scotians are going to feel their belts get a little bit tighter this year. And 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, the Nova Scotia director at the Canadian Centre for Policy Alternatives (CCPA).

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 per cent in the past year, which was slightly less than the inflation rate of three per cent.

The plunge in real purchasing power was worse for Nova Scotians than the average Canadian. Their wages increased by just 0.4 per cent, while inflation was four per cent—meaning that buying power actually fell 3.6 per cent, points out Larry Haiven, professor of management at St. Mary’s University.

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

Some groups, including the Nova Scotia Chambers of Commerce, have been calling for tax cuts to make the province "more competitive" for businesses.

But Saulnier disagrees.

“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.

“Any such initiatives that are across the board benefit the wealthiest the most,” Saulnier said. “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 in Toronto 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 said.

“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,” he added.

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

But tax reductions are a low-hanging fruit that fails to get to the crux of the problem, he said.

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

Haiven co-authored a 2008 study that suggests 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 per cent between 1981 and 2006, according to the report, average weekly earnings actually declined five per cent.

“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 per cent 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 noon on January 3 that year, had earned as much as the average worker’s annual salary.

This article was originally published by the Halifax Media Co-op.

Ben Sichel is a teacher and a writer and editor with the Halifax Media Co-op.

Comments