New year, new taxes: Income tax bracket creep in Nova Scotia strikes again

Brotten report recommended a built-in cost-of-living adjustment for personal income taxes in 2014

Published on January 6, 2016
Tax time
Metro Creative

HALIFAX - While you were ringing in the New Year on Jan. 1, your Nova Scotia income taxes were going up without you even knowing.

That’s according the Canadian Federation of Independent Business, which raises awareness each year about bracket creep in the province.

“This is a stealth tax,” said Nick Langley, director of provincial affairs for CFIB in Nova Scotia. “Indexing ensures that a person’s buying power from year to year isn’t eroded by paying more personal income tax. That’s why most governments do it automatically every year.

Nova Scotia, however, does not index its income tax rates with inflation. That’s why you may find that cost of living increase in your salary has put you into a new, more costly tax bracket.

“Mysteriously, your money doesn’t go as far as it used to, and you can’t figure out why. But the government knows exactly why,” said Langley.

All provincial governments, except P.E.I. Manitoba and Nova Scotia, index their tax brackets with inflation. The federal government also uses an indexed system.

According to the Bank of Canada, due to inflation measured in the Consumer Price Index (CPI), you now pay more than $8.10 for what cost $1 in 1960.

Wages work the same way. If you made $40,000 in 2001, you’d have to earn $55, 289 today to match the real amount. And if you’re employer allows for those small increases in your salary to keep up with inflation rates, you may eventually find yourself in a new bracket.

 “The worst part of it is that bracket creep affects low income-earners more than most,” Langley said. “If you are earning minimum wage in Nova Scotia, the amount of personal income tax collected by the provincial government has increased by 275 per cent in the last 15 years.”

Bracket creep was highlighted in Laurel Brotten’s Nova Scotia Tax and Regulatory Review ‘Charting a Path for Growth,’ released in 2014. She recommended a built-in cost-of-living adjustment for personal income taxes.

“Nova Scotia must stop the taxation slide caused by bracket creep – the lack of indexation of the tax brackets,” read the report prepared by Brotten, who now leads Nova Scotia Business Inc. “This needs to change to further both fairness and transparency in the system.”

According to the report, if tax brackets were indexed to annual inflation, Nova Scotians would receive $20 million in tax relief in 2015–16 alone.

In a statement from the Department of Finance, the government noted they had provided “significant income tax relief” for Nova Scotians during the last 15 years.

“Indexing the Nova Scotia’s provincial income tax brackets would cost more than $20 million for each one per cent indexing,” the statement read. “Until Nova Scotia achieves a sustainable fiscal position we do not have the financial capacity to index tax brackets.”

Langley says that’s not good enough.

“I understand the financial challenges that our province is facing,” he said. “But we see this as a way of injecting life into the economy.”

 

FACTBOX: Cost of bracket creep for Nova Scotians, 2001-2016

 

 

 

Income in 2001

 

Over-taxation

 

Single person

 

Minimum Wage

 

$1,148

 

Single person

 

$40,000

 

$6,915

 

Single person

 

$60,000

 

$10,045

 

Single person

 

$80,000

 

$10,017

 

Two-income couple

 

$75,000

 

$15,021

 

Source: CFIB calculations based on income (in 2001 dollars) claiming the basic personal amount, EI premiums and CPP contributions. Salary and indexed amounts were calculated using annual CPI for Nova Scotia from Statistics Canada.