Tax bite painful but it could be worse

Find the Tory taxman in Nova Scotia a bit harsh after taking away some of that tax cut a couple of years ago?

It may surprise you, but in Nova Scotia, where about half of people paying provincial income taxes earn less than $30,000 a year, those taxpayers don’t do that badly compared to people in other provinces

The workers with $30,000 of taxable income are fourth among provinces — behind those in British Columbia, Ontario and Alberta — in paying the least amount of tax.

Perhaps not as surprising is the more money a Bluenose makes, the worse off — in terms of provincial tax — the taxpayer is against provincial neighbours.

At $60,000 and $90,000, a Nova Scotian is seventh. At $125,000, a Nova Scotian is bumped down to eighth, ahead of only Newfoundland and Labrador and Quebec.

New Brunswick made those comparisons in its spring budget by looking at the tax burden facing individuals claiming only the basic personal amount, employment insurance premium and Canada Pension Plan contribution.

That snapshot will change when Newfoundland and Labrador’s subsequent tax reduction takes full effect next year.

For Ian Munro, research director at the think-tank Atlantic Institute for Market Studies, Nova Scotia’s tax rates across all brackets are cause for concern.

At the low end, he wonders whether the amount of tax discourages people from getting a job. At the other end, he also wonders if the tax hit makes attracting entrepreneurs and professionals even tougher.

“For lower-income workers, Nova Scotia doesn’t fare too badly relative to some of the other provinces, but we’re still collecting income tax from people who are making $15,000 a year,” Mr. Munro said. “Not a huge amount of income tax, but we’re still taking in money and to the extent you’re taxing the income of people with those low incomes, you’re providing disincentives to maybe move into the workforce from unemployment or to move from social assistance into the workforce.”

He pointed out that taxing higher-income earners more aggressively than other provinces do is a factor when trying to draw workers in senior professional, scientific or research positions as well as business owners to the province.

“These are the people, really, you want to be coming to live here and work here for the skill they provide,” Mr. Munro said. “We want to attract the people, attract entrepreneurs who will come here and establish businesses that will hire more people, in turn, and contribute to growth and ultimately generate corporate tax revenue, all those sorts of things.

“And these are the people who probably are most mobile or most willing and able to pick up and move from one province to another in pursuit of better opportunities. So I think that’s where the competitiveness becomes more important.”

While Nova Scotia slips in national ranking as a person’s taxable income climbs, the gap in actual cash isn’t that big for provinces in the middle of the pack.

British Columbia, Ontario and Alberta are ahead by a wide margin for someone at $60,000, with the Saskatchewan taxpayer coughing up $1,600 more than her third-place neighbour in Alberta.

But the Nova Scotian down in seventh pays $500 more than that person in Saskatchewan, $122 more than the sixth-place Prince Edward Islander and $82 more than the eighth-place New Brunswicker.

The cash gap widens as income rises, but even at $90,000, the Nova Scotian in seventh pays about $300 more than the Manitoban in fifth.

John Jacobs, director with the Canadian Centre for Policy Alternatives in Nova Scotia, calls the Nova Scotia tax regime progressive because low-income earners pay relatively less tax than higher-income earners. And at the higher-income levels, he said the provincial tax isn’t “out of whack” with other smaller provinces.

Mr. Jacobs said that makes him question just how much of a factor the provincial tax rate is in the competitiveness equation.

“The point is, it’s not completely out of the ballpark when compared with other provinces,” he said. “I think too often we look at taxes and personal income taxes we pay without looking at the services we receive.

“It’s the quality of life or quality of the services and the infrastructure in the roads, the highways, the hospitals, health and safety that really is what attracts people. Of course, then the other part is the jobs.”

Mr. Jacobs and Finance Minister Michael Baker both noted the importance of equalization, the federal transfer that ensures provinces can offer comparable levels of service at comparable levels of taxation.

“We recognize that our income taxes, particularly in the higher-income levels, are higher than many parts of the country and to some extent that’s a function of equalization,” Mr. Baker said.

“Obviously, taxation fits into that mix of attracting people, attracting businesses to Nova Scotia, and that’s why we’ve been trying to move forward with tax reform as we can afford it.”

The Tory government made a false start with a 10 per cent personal income tax cut in 2004, making the cut in all brackets, then restoring the old rates for all but the lowest bracket a few months later when it became apparent the cut across the board was unaffordable. At the time, the government also created a new higher bracket for people with a taxable income of more than $93,000.

Mr. Baker pointed out that the reality in Nova Scotia is the relatively high number of people who make less than $30,000 a year. The province needs tax revenue to provide services, but officials realize low-income earners can pay only so much.

And he acknowledged Mr. Munro’s point about ensuring taxes aren’t a disincentive to people working, but said his government has done a good job recognizing that in the tax rate.

The Finance Department continually reviews the personal and corporate tax environment and is preparing a discussion paper about taxation and its relation to services.

Department officials hope to release it later this year.

For now, the province has a medium-term plan for tax relief, with annual increases to the amount someone can earn before having to paying provincial income tax, increases to tax credits, and indexing of the basic personal amount, non-refundable tax credits and tax brackets starting in 2011.