Manitoba's payroll tax burden still increasing 33 years later
Tax puts pressure on province's small businesses, writes Elliot Sims
For all Manitobans, July 1 is a bittersweet date. While we enjoy and celebrate Canada's birthday, it's also the unhappy anniversary of the province's infamous PST increase. But that's not the only tax hike entrepreneurs bemoan at this time of year.
Since 1982, June 30 is the anniversary of an equally costly moment in Manitoba's tax history: the creation of the province's "payroll tax."
Thirty-three years later, the tax is slowly expanding its reach and affecting more businesses, putting ever more tax pressure on Manitoba's small businesses.
Payroll taxes — those that are based on the number of hours worked by employees — are the most burdensome around. Unlike the other taxes businesses are charged, payroll taxes are insensitive to business conditions. They must be paid regardless of the state of the economy, whether or not a business makes a profit or whether a business's sales volume increases or decreases.
By their nature, payroll taxes also make business environments less competitive by raising the hourly cost of labour. If a business is looking to expand, they are more likely to do so in a jurisdiction with low or no payroll taxes, rather than one with high payroll taxes.
Given the negative effect on those looking to grow and create jobs, it's no wonder that over two-thirds (68 per cent) of Manitoba's small business owners identify payroll taxes as having the biggest impact on their businesses — far higher than corporate income taxes (45 per cent) or property taxes (40 per cent).
While other provinces also impose payroll taxes, including Ontario, Quebec and Newfoundland and Labrador, Manitoba's version does the most to slow growth. In Manitoba, businesses must pay a tax of up to 4.3 per cent on payroll that exceeds $1.25 million, the highest marginal rate in Canada.
Unfortunately, the negative impact of the payroll tax is slowly hitting more and more businesses due to lack of action by the provincial government.
While companies with payrolls under $1.25 million are not subject to the payroll tax, the failure to adjust this exemption level for inflation means more businesses have to pay the tax every year. Consequently, government revenues from the tax also keep growing.
Federation wants exemption level raised
Under current legislation, the payroll tax actually penalizes businesses that try to help their employees by giving them annual "cost-of-living" increases. The payroll tax's exemption level isn't indexed, so these goodwill increases will eventually push a small business over the exemption limit. In other words, trying to be a good employer is taxed in Manitoba.
This absurd reality is why the Canadian Federation of Independent Business is calling for the payroll tax's exemption level to be increased by $250,000 immediately and indexed to inflation thereafter.
To their credit, the provincial government increased the exemption level in 2008, but inflation has eroded protection from the tax since then. In fact, if the exemption level had been adjusted for inflation over the last seven years, it would be over $1.4 million.
To add insult to injury, the provincial government has no accountability measures in place for the revenues brought in by the Manitoba payroll tax.
While other payroll taxes are placed in safeguarded accounts to fund clearly defined programs, like employment insurance or the Worker's Compensation Board, the Manitoba payroll tax has no such limitations.
Calling it a "post-secondary education levy" doesn't change the fact that revenues from the tax are deposited into the general revenue fund and used at the whim of the provincial cabinet. This makes it, from a small business perspective, the most despised tax in Manitoba.
Manitobans have many things to be thankful for as we prepare to celebrate Canada Day. The costly, unaccountable Manitoba payroll tax, and the uncompetitive business climate it creates, certainly isn't one of them.
Elliot Sims is the Manitoba director of provincial affairs with the Canadian Federation of Independent Business (CFIB). He can be reached at firstname.lastname@example.org, or you can follow Elliot on Twitter: @CFIBMB