The P.E.I. government will hit Islanders again this year with a back-handed tax increase by not indexing tax brackets, complains the Canadian Taxpayers Federation.

'Where it really effects people is people in the middle income.'— Kevin Lacey, Canadian Taxpayers Federation

In seven of 10 provinces this year income tax brackets were increased to match inflation, but not on P.E.I. The Island has not indexed its tax brackets since 2008.

"Without indexing the brackets, P.E.I. becomes less and less competitive each and every year because its taxes become more and more expensive to pay," said Kevin Lacey, Atlantic director for the Canadian Taxpayers Federation.

"Already the province is the third highest taxes in all of Canada."

Someone on P.E.I. making $45,000 a year is paying around $640 more a year in provincial tax than someone in New Brunswick, where tax brackets are indexed, Lacey said.

"Where it really effects people is people in the middle income, that as they earn more money they're moving into higher tax brackets paying higher taxes, but their buying power remains the same," he said.

There are other changes P.E.I. could have made, Lacey noted, that would have helped ease a taxpayer's burden.

Nova Scotia didn't index this year either, but helped all taxpayers by raising the personal exemption by $250, and indexed several tax credits for low-income earners and seniors.

P.E.I. Finance Minister Wes Sheridan weighed similar changes, but did not implement them for this year.

Sheridan said indexing tax brackets would have cost the government $3.1 million, a little less than five per cent of the projected deficit. He said he does not intend to index tax brackets until the budget is balanced, which he says will be in 2014.