Finance Minister Wes Sheridan says the province simply cannot afford to lower income tax increases this year in P.E.I., especially at a time when bond raters are warning provinces to balance their budgets.
Sheridan was responding to information from the Canadian Taxpayers Federation.
CTF Atlantic director Kevin Lacey says P.E.I. residents pay some of the highest rates of income tax in the country based on a sneaky tax grab from the provincial government.
“The provincial government is getting away with a sneaky tax increase each and every year because they refuse to account for inflation in the taxes we pay,” said Lacey.
P.E.I. is one of just three provinces that still do not index their tax brackets to reflect inflation, as well as increases in federal EI and CPP payroll contributions. This means increases in income necessary to keep in step with inflation will bump more income into higher and higher tax brackets, leading to Islanders paying more taxes.
This is known as bracket creep.
Despite the imminent arrival of a new tax in P.E.I. when the HST is implemented in April, Sheridan the province still can’t afford to change the way income tax is indexed.
Raising personal income tax exemptions with the cost of living and fully indexing tax brackets has a price tag of approximately $3.5 million a year.
“At this time, it’s just not realistic to look at that being a priority when we need to get a balanced budget,” Sheridan said.
“The bond raters have certainly put that very clearly to all the provinces … there’s no question that they’re watching each and every one of us with regard to our fiscal plan and ensuring that we’re moving toward that balance.”
Sheridan pointed out the other two provinces that also have this bracket creep — Nova Scotia and Manitoba — are fellow have-not provinces.
He laid part of the blame for the need of this extra income tax revenue for these provinces on Ottawa.
“The smallest provinces are all struggling because of the change in funding from Ottawa and it’s just impossible for us right now when we’re trying to reach a balanced budget to index those tax brackets right now.”
According to data from the Canadian Taxpayers Federation, an average P.E.I. family with two children and two working adults earning a combined $80,000 will pay $92 more in provincial income taxes resulting from bracket creep, $79 more in Canada Pension Plan premiums, and $70 more in Employment Insurance contributions.
The total bill for new taxes in 2013 will be $241.
Sheridan said government will look at this issue once the province has achieved a balanced budget.
But don’t expect it to be the first financial item addressed in 2015 — the year P.E.I.’s deficit is scheduled to be eliminated.
“It is one issue that is on the radar when we do get to balance. Would this be a priority spend? I question that,” Sheridan said.
“We would have to look at that. Is it the low-income brackets that should be fixed first? Should it be money into health care
and education, social services? The pressures are all there.”