Every year eight of the thirteen provinces and territories and our federal government adjust their tax systems to account for the rate of inflation. Often referred to as indexation, increases to the basic personal exemption (BPE) and tax brackets help to ensure taxpayers are not being bumped into higher tax rates solely because they receive a small cost of living adjustment to their wages.

For many provinces this is a recent phenomenon, thanks in no small part to the successful campaign waged by the Canadian Taxpayers Federation (CTF) to end bracket creep in the 1990's. This year's adjustments ranged from a high of 2.2% to a low of 1.9% here in Alberta (excluding the five provinces who still allow bracket creep).

In July 2006, the Alberta government will add the Alberta Family Employment Tax Credit to its indexing list. This tax credit was introduced in 1997 to encourage "work effort" for low and middle income Alberta families. It provides a refundable, per-child tax credit, to a maximum of $1,450. The government will index both the maximum credit amount and the phase out income threshold. This is a very positive move, and one that should be followed in other areas of provincial taxation - particularly for the Alberta Health Care Premium tax.

For years, the CTF has advocated the outright elimination of health care premiums, mainly due to the fact it's a regressive, unnecessary, and costly tax to administer and collect.

In an attempt to shelter low-income individuals from its regressive nature, the Alberta government provides a premium subsidy. Single individuals earning under $12,450 a year receive a full subsidy. Those earning between $12,450 and $15,970 receive a partial subsidy. And of course, the rest of us earning over $15,970 pay the full $528 each year. Thresholds have also been established for families.

The province boasts about keeping low-income earners off the tax rolls by indexing the BPE and soon the Alberta Family Employment Tax Credit, yet nothing has been done to keep low-income earners from paying more in health care premiums. Subsidy thresholds have remained the same since 2002 and are not increased annually to avoid "premium creep."

For example, if you are a single individual who earned $12,449 in 2004 you would have received a full premium subsidy in 2005, plus you would pay no provincial income taxes. Had you received a cost of living increase of 1.9% in 2005, this year you once again could expect to pay no provincial income taxes (thanks to indexation), yet you will have to pay $35.33 in health care premiums (thanks to no indexation). This means the provincial government would take 15% of your cost of living increase in new health care premiums.

Furthermore, if you were the sole earner of a family with children who earned $33,612 in 2004, you would have been eligible to receive a partial premium subsidy leaving you to pay $960.30 in health care premiums. Had you received a 1.9% cost of living pay raise in 2005, you would now be earning over the partial subsidy threshold of $34,250 and no longer be eligible for any premium subsidy. You would have to pay the full $1,056 premium, an increase of $95.70.

The Alberta government should do the right thing and eliminate this regressive tax for all Albertans in the 2006 provincial budget, but in the mean time, the question must be asked: Why is a government who is awash in cash, asking low-income Albertans for even more money by not indexing the health care premium thresholds as it does for the BPE and soon the Alberta Family Employment Tax Credit