Manitoba tax changes do little for low income people, argues Molly McCracken

At first blush, the provincial government’s plan to increase every Manitoban’s basic personal exemption at tax time sounds like an idea that will help the province’s neediest citizens. But a closer look reveals that the policy will cost millions in lost revenue, writes Molly McCracken.
Molly McCracken says a better way to lift Manitobans out of poverty would be to raise the minimum wage. (Darren Staples/Reuters)

At first blush, the provincial government's plan to increase every Manitoban's basic personal exemption at tax time sounds like an idea that will help the province's neediest citizens.

But a closer look reveals that the policy will cost millions in lost revenue and will be of greater benefit to the wealthy than the poor. In fact, the lower your income, the less it helps you.

The basic personal exemption (BPE) is the income threshold at which we start paying provincial income taxes.

In the spring 2016, the Progressive Conservatives promised to bring the Manitoba BPE "towards the national average within our first term."

Manitoba's BPE is currently middle of the pack — the forth out of 10 provinces.

Manitoba Finance estimates that each increase of the BPE by $1,000 represents a loss of $78 million in provincial revenue. Bringing Manitoba up to the national average will cost the province more than $150 million.

There is no plan to replace this lost annual revenue revenue.

Despite the loss of so much revenue, a key platform in the new provincial government's poverty reduction strategy is increasing the BPE in order to "put more money on the kitchen table." 

The current provincial budget consultations highlight the changes to BPE. But increasing the BPE offers little benefit to lower income earners. Upper income earners, on the other hand, benefit greatly.

The chart below represents the impact of the new government's promise to bring the BPE to the national average of $11,066 from its current $9,134.

The chart divides all families in Manitoba by income level. Those families who earn up to $14,718 per year before taxes will save on average $17 from increasing the BPE to the national average. Those earning $14,719 - $21,953 will save $68, and so on.

Pre-Tax total incomeAverage BPE tax savings per family

Higher income families stand to benefit the most from an increase in the BPE. Increasing, the BPE puts substantially more money in the pockets of Manitoba's wealthy and does little for low to moderate income earners.

Why is this the case? Manitobans pay 10.8 per cent on the first $31,000 earned; 12.75 per cent on the next $36,000 and $17.4% on income over $67,000.

The BPE is the floor at which we start paying income taxes. When it goes up, less income across the board makes it to the higher brackets.

As the chart indicates, this affects all tax brackets.

The Manitoba government is also increasing the aforementioned tax brackets to inflation; in these calculations this is estimated at 2 per cent.

Indexing the brackets to inflation saves nothing for those earning below $31,000 per year. Indexing the tax brackets will cost Manitoba $12.8 million in forgone tax revenue in 2016/17. So far the new government moved forward in Budget 2016 by indexing the BPE to inflation, from $9,134 up to approximately $9,292, which will take effect in 2017.

The 2,770 low income Manitobans taken off the tax rolls will save only $16 per year from this change, not even enough for a box of diapers.

This change costs Manitoba $11.6 million in forgone tax revenue in 2016/17.

The new government did not increase the minimum wage in 2016, implying somehow that the changes to the BPE are enough. But simply increasing the minimum wage by the rate inflation would bring home $400 more for these earners and at least prevent their income from decreasing.

Make Poverty History Manitoba, a broad-based coalition that works closely with marginalized Manitobans, recommends increasing the minimum wage to $15.53 per hour to bring low wage workers above the poverty line.

This government's approach to poverty reduction is curious when research shows that Manitobans support paying taxes for public services.

For example, in a poll last year, Probe Research found that the majority of Manitobans preferred the government maintain public services rather than reduce taxes.

Maintaining public services is important, particularly in Manitoba with our higher than average rates of poverty. The comprehensive poverty reduction initiatives identified by Make Poverty History Manitoba are starved of public investment.

Child care, social housing and increases to the basic needs and food budget for those on social assistance require more revenue in the public interest, not less. This is why reducing tax revenue through the BPE in the name of poverty is particularly insidious.

Tax policy should be targeted to benefit low income people. Increasing the BPE is a blunt instrument that least affects low income Manitobans. In fact the lower your income, the less it helps you.

The new provincial government should not move forward with bringing the BPE up to the average and lose over $150 million dollars of revenue annually. It does not substantially benefit low income Manitobans and creates a massive hole in the budget.

Molly McCracken is the director of the Canadian Centre for Policy Alternatives Manitoba office and a steering committee member of Make Poverty History Manitoba.