This text was first published in the Chronicle Herald on March 14th, 2022.
If your take-home pay was cut by $75 this year, would you notice it?
It’s $2.88 per paycheque. You might not notice.
But if goes up every year, it quickly snowballs. Surely, you’d notice if your take-home pay was $1,334 smaller…
That’s exactly how the government of Nova Scotia has been increasing your taxes for two decades.
Since the province adopted its current tax structure in 2000, it has never once indexed tax brackets to inflation. All it has done is create two new tax brackets since.
As a result, the province has subtly pushed a higher share of your income into higher tax brackets, even if you’re no richer.
This year, with record-high inflation, the government of Nova Scotia will dive at least $74.48 deeper into your pockets than it would if brackets moved with inflation. This phenomenon is known as bracket creep.
But it gets worse when you consider the full-scale of the government’s subtle tax increases over the years.
Take people earning $50,000 today.
If the only raises they got were cost-of-living adjustments, they would have earned just a bit less than $32,000 in 2000. As such, provincial income taxes would have taken $2,426 out of their pockets, or just over 7.6 per cent of their income.
Today, this same person is paying $5,021 in taxes, or about 10 per cent of their income.
Even though their standard of living has not increased, the government is taking a slightly larger share of their income every year.
If tax brackets had kept up with inflation, they would get to keep an extra $1,334 in their pockets every year.
Getting rid of bracket creep is not unprecedented either.
On the federal side, Paul Martin got rid of the problem when he was finance minister in 2000.
Most provinces also index their tax brackets. Saskatchewan was the latest to join the club, indexing all its tax rates since January, 2021.
In neighbouring New Brunswick, the provincial government uses the same calculations as the federal government to adjust its own tax brackets.
As such, the minimum threshold to get bumped into the second tax brackets will increase from $43,835 to $44,887 in 2022. Taxpayers would have been liable for about $100 in extra taxes if the government hadn’t adjusted it.
It’s not like Nova Scotians can afford further government encroachment into their incomes either.
As it stands, the province’s after-tax income sits a full nine per cent below the national average.
The cost of living, meanwhile, has gone up by 4.9 per cent in the province last year.
This means that Nova Scotians have less in their pockets as they absorb the rapid price increases we’ve seen at the grocery store or in gas stations.
And as a larger share of their incomes gets progressively taken up by taxes each year, the gap with the rest of the country is widening.
The very least the government can do is to stop contributing to the problem.
As a professional accountant, Premier Tim Houston understands the impact bracket creep has in eroding Nova Scotians’ disposable incomes. He and his government have the power to end it with the upcoming budget. All they need is the political will.