Taxpayers start to fall behind (again) in 2003

Ottawa - Tueday, December 31, 2002 - by: Walter Robinson, Federal Director, Canadian Taxpayers Federation


With the New Year just around the corner itís time to examine the impacts of 2003 tax changes for the average taxpayer. In a nutshell, 2003 marks a turning point for Canadian taxpayers. After two consecutive years of incremental gains (read: keeping more money in our pockets), the coming year will mark the return of Canadians keeping less of their hard-earned paycheques.



taxes drop

Before pouring salt on the flesh wound, there is one small glimmer of good news on the tax front for Canadian businesses. As of January 1st, the general corporate tax rate will decline by two percentage points from 25% to 23% on its way to 21% by 2004 as part of Ottawaís five-year tax reduction strategy laid out in the February 2000 budget then augmented in the October 2000 economic and budget update.



12 years
payroll taxes

Paying less tax should help businesses reduce their own debts, reinvest in plant and equipment and maybe even boost wages a bit. Speaking of a wage hike, this would be welcome indeed as Canadian workers and employers are going to pay more in payroll taxes starting in 2003. This marks the twelfth straight year, thatís right, count ëem, 12 years in a row that increasing payroll taxes have shrunk the paycheque of the average Canadian worker.



insurance down
CPP up

To be fair, the average $41,000 employee will see their employment insurance (EI) premiums drop by $39 in the coming year due to Ottawaís move to cut the EI rate by 10 cents for every $100 of insurable earnings. However, Canada Pension Plan (CPP) taxes are jumping again by 25 cents for each $100 of insurable earnings which works out to an annual increase of $128.60.




Bottom line, workers will pay $90 more in 2003 than they did in 2002. And the more troubling story here is that payroll taxes (EI and CPP combined) have jumped by 45% since 1992. This outpaces inflation by a factor of almost two to one.



at 3.1%

While Ottawa is indexing tax brackets and credits by 1.6% for 2003 (courtesy of the Canada Taxpayers Federation led victory over bracket creep in 2000), the question remains, is this enough? Just before Christmas we learned that inflation jumped to 4.2% ó an 11-year high ó and even the Bank of Canadaís core inflation rate (which factors out energy and food prices which are subject to great volatility) is now pegged at 3.1%.




This means that the 2003 indexation changes which will raise the basic personal exemption from $7,634 (2002 level) to $7,756 and push all other tax brackets up will quickly be eclipsed by inflation. So for workers that are fortunate to receive wage hikes that keep pace with actual inflation, once again ó as in the bad old days of bracket creep ó more of their income will be exposed to higher tax rates.




Earlier this month, Statistics Canada reported that personal income taxes remained the single largest expenditure in the average household budget accounting for 21.2% of all expenditures. For the record, this is more than we spend on shelter (19%), transportation (13.2%) or food (11.1%). What about having fun you ask? Well after paying all those taxes and buying the basics, a paltry 6.1% of household income is devoted to recreation.




So what does it all mean? Canadian taxpayers may break even on paper when all tax changes are factored in but inflation will expose more of their incomes to higher tax brackets and where it counts, in their wallets, they will fall further behind.
  Walter Robinson
Federal Director


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