Raising the basic personal amount — not the minimum wage — is the way to help low-income workers
Increasing the minimum wage is a good way for governments to collect more taxes, however
We all want the poor in Canada to be better off, but increasing the minimum wage just isn't the way to do it.
There has been endless debate about the minimum wage lately: one side argues that a $15 minimum wage will raise the standard of living and help stimulate the economy, while the other side points to the increased labour costs leading to massive layoffs.
In Ontario, the Wynne government has framed the debate as a battle between government and business, with the government seemingly taking the moral high ground by standing up for low-income workers, while businesses try to slash benefits and increase profits.
Basic personal amount
But while everyone's fighting over minimum wage stats and numbers, one option seems to have been overlooked: increase the "basic personal amount" to reflect the standard of living. This would put more money in the hands of the working poor, help stimulate the economy and would also not have any effects on labour costs or small business profit margins.
The basic personal amount (also called the basic personal exemption or BPE) is a tax credit available to all of those who pay income tax. It represents the primary value of income that can be earned without being subject to taxes.
The BPE is $11,809 federally and varies by province, ranging from $8,160 in P.E.I. to $18,915 in Alberta, where the minimum wage will jump to $15 in October. In Ontario, where the $15 minimum wage is slated for 2019, the BPE is $10,354. This means that the provincial government taxes all earnings over $10,354.
At $11.60 per hour ($23,200 per year), which was Ontario's minimum wage before it was raised to $14 in January, full-time minimum wage workers would not be exempt from paying provincial taxes. The BPE is also significantly less than the poverty line, which is estimated to be around $20,676 for a single-person household. This basically means that the only workers exempt from taxes are either working part-time or are living in extreme poverty. This doesn't exactly fit the government's narrative about helping low-income earners.
Here's an example: prior to 2018, if you were working full-time and making minimum wage in Ontario, you would pay $850 in provincial taxes and $1,558 in federal taxes. Combined, both governments were taxing minimum wage Ontarians $2,400. Following the definitions above, minimum wage workers were being taxed into poverty.
While it is true that minimum wage increases lead to more money for minimum wage workers, the increases aren't as significant as they appear. The increase from $11.60 to $14 is a salary increase of $4,800, but only results in $3,800 going to the employee due to taxes. According to the Canadian Federation of Independent Business, if you include the other payroll deductions, employees only really see one third of the wage increase.
The BPE clearly needs to be raised. This would address the concerns of both sides of the argument, while still fitting the government's narrative. At a minimum, the BPE should match the poverty line, though ideally, it would be raised to match a "living wage," which would be around $30,000 per year, according to most proponents of the minimum wage increase. This would mean that no lo- income workers would be taxed into poverty, or taxed from a livable income into an unlivable one.
So why hasn't that happened? Why are provincial governments pushing for a $15 minimum wage instead?
The answer to that is simple. In a progressive tax system, higher wages directly translate to increased tax revenue. Ontario's raise from $11.60 to $14 means that minimum wage workers would pay approximately $350 more in provincial taxes. And with approximately 623,000 minimum wage workers in Ontario, that would mean $218,050,000 in additional tax revenue for the province (not to mention an increase of $448,560,000 for the federal government).
Considering that a minimum wage hike is generally politically popular, and primarily comes out of the pockets of the working poor, a $218 million increase in a one-year period is quite impressive. Especially if a government can claim to be looking out for the little guy while doing it.
All levels of governments should be tackling the challenging issues of income inequality, tax fairness and poverty in Canada. Divisive politics are not the way to do it. If governments want real, non-partisan change that helped those who need it most, then an increase to the basic personal amount would be a good place to start.
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