Manitoba’s choice

Taxing high earners wouldn’t have filled provincial coffers, writes Kevin Milligan

Kevin Milligan is associate professor of economics at the University of British Columbia.

Manitoba stands alone in Canada, and not just for its mosquitos and late springs. It also stands alone in resisting a wave of higher provincial income tax rates on top earners—a wave that’s slowly sweeping Canada from coast to coast. Nova Scotia was first on this trend, creating a new higher tax bracket for those making above $150,000 in 2010. Ontario and Quebec announced similar brackets to take effect in 2013, and B.C. looks set to join the others in 2014.

In the chart below, I show the tax rate for high earners across provinces in 2013, along with two potential paths for B.C. in 2014 depending on the results of the upcoming provincial election. The top rates range from 50 per cent in Nova Scotia and Quebec to 39 per cent in Alberta. If the NDP proposal for B.C. is implemented, the top tax rate there will move from 43.7 per cent in 2013 to 48 percent in 2014.

The key question to ask here is, why did all these provincial governments feel the need to add one more tax bracket at the top? They might have done so out of a concern for social justice. Increasing income inequality is real, and some Canadians feel strongly that those at the top who have made out very well over the past couple of decades should make greater tax contributions. However, as Stephen Gordon recently reminded us, if the goal is to raise revenue, we must always be careful about our expectations from higher rates.

Which brings us back to Manitoba.

In the recent provincial budget, the province’s NDP government chose to move the PST up one point, from seven to eight per cent, but left the income tax untouched. Why?

My guess is the Manitoba government actually wanted to raise revenue, rather than just run a tax-the-rich flag up the flagpole. The higher PST in Manitoba will raise about $277 million in 2013-2014. No realistic extra income tax bracket for the rich could hope to come close to that revenue number.

Let’s look at the math. According to public data from the Canada Revenue Agency, there were only 11,450 taxpayers with income over $150,000 in Manitoba in 2009. Their total taxable income above the $150,000 threshold comes down to about $1.25 billion. If you project that income forward to 2013, you can calculate what provincial income tax rate would be needed in a hypothetical $150,000 bracket to generate the same $277 million the higher PST will bring. (Note that I am not accounting for the shrinkage in reported taxable income that would likely result from higher rates as some high-income taxpayers rearrange their finances to minimize the hit.)

My calculations suggest the current top bracket rate of 17.4 per cent in Manitoba would have to approximately double to 36 per cent to equal the PST yield of $277 million. In addition to the 29 per cent federal top rate, this would take the combined Manitoba-federal top income tax rate over 60 per cent. Needless to say, tax rates set that far out of line with other provinces would be dangerous policy for Manitoba. In other words, there just isn’t enough money to be squeezed out of Manitoba’s high earners to significantly raise provincial revenue.

Of course, the Manitoba government had many other budget options. It could have chosen to lower spending by $277 million, to increase income taxes for middle earners by a few points, or to let the deficit come in $277 million higher. But if the choice was between a higher PST and a high income tax bracket, the PST was the only realistic short-run option. (In the long-run, a move to join the HST system would be far more beneficial, but that is a debate for another day.)

The lesson from this Manitoba exercise for all Canadians is clear: provinces might wish to push up tax rates on high earners in pursuit of fairness, but turning up the heat on the rich isn’t going to generate the kind of revenue that can feed the continuing growth in provincial government spending.




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Manitoba’s choice

  1. Using the GST rate hike of 1% generating $277 million extra revenue. Where does the money come from (ie dynamic effect)? Less overall consumption? Lower savings?

    • Simplification: lowest 1/3 income don’t pay GST on their exempt purchases. Top 2/3s work an extra two days per yr. I like the MB hydro northern greenhouses R+D; way cheaper healthcare costs in the long run.

  2. The Manitoba budget is a complete sham. The NDP promised during the last election that they would not raise the PST. That was a complete lie. Manitoba’s had a decade of tax increases, yet the incompetent NDP are still running increasing deficits. They’re breaking the law by introducing a PST hike without going to the electorate with a referendum.

    The NDP can not be trusted.

  3. Cities other than Wpg with avg housing prices under $300000 are Quebec City, Halifax, Saskatoon, Regina…MB could double their tax rates and not see English people move to mnetally ill Asia. Other than Quebec City, there is no city above 500000 people with cheap housing, mon ami.

    • I think the data for Saskatoon might be a little out of date, it’s been skyrocketing last few years.

      • Who cares. Sry about the window, I was living in the one riding without universal healthcare; couldn’t even get tylenol until I had Trench Foot heart tachycardia. Its okay though, I’m from the city with Valour Rd. It is good that creative people and geniuses can get drugs but the UBC city is breeding mental illness by letting mentally ill people use their transfer payments for hard drugs; is why Pickton got away. Vancouver let Chinese speculators buy condos without living in them.
        MB has a high child poverty rate and alcoholism. If money could be spent on giving people a refund if their college courses don’t result in employment (I got a runaround at an Indian College for a medical instrument sterilizing course), or free community centre and pools admission, or green team jobs for jr high school students, or big brothers and nursery for alcoholic-raised inner city kids…a peat moss school would help me make carbon sequester jobs up north.

        • I guess why I’m hostile is MB is the one part of the Prairies that hasn’t been hijacked by petro and Christian interests. And MB’s *future* healthcare and grain earners will grow, you’d think. Don’t worry Maclean’s, playoffs tmrw. The Trench Foot I wouldn’t have got in MB would’ve got treated instantly in MB. Healthy people though; need more coffee in MB and less booze.

  4. Arithmetic aside, there is no reason those that can pay should not pay. The GST is basically a ‘flat tax’, everyone pays the same amount. Think of the savings in a flat tax for personal income as well. No tax dodges, or loopholes, if you earn a dollar you pay a flat rate of tax. The savings on staff for taxation departments alone would be significant.

    Every dollar earned is subject to the exact same tax, personal income, business income, all is the same. there are NO tax breaks. Businesses can no longer consider the cost of doing business as taxes paid, it actually becomes a cost of doing business.

    Factoring the previous years total earnings against the upcoming years budget provides the rate, much like property tax does today. There is a minimum level below which taxes are not applied, both business and personal.

    Let the global opportunistic parasites pack up and leave. It will create opportunities for home grown business, owned by people with a vested interest in their community, instead of a bottom line that must be realized before these savior like companies will honor us with their presence.

    Will there be growing pains? Sure. Will they be any different than what is suffered today? Not likely. The payoff of having home grown, solid manufacturing and businesses will certainly be better than our current future.

    And of course, kill the politicians credit card, dismantle reserve banking, it is destroying every economy on the planet.

    • no deductions for businesses? You just killed every business in Canada. Gonna re-introduce them now? Just created several hundred pages of income tax legislation. Really the only way your idea is even conceivable is if you meticulously regulated the manner in which every Canadian does their accounting, in effect, making an Accounting Act every bit as impenetrable as the Income Tax Act.

      And it’s not the progressive rates that make calculating taxes time consuming and difficult. Even if we were to take out a large number of deductions and ‘loopholes’, as you suggest, charging different rates based on a concept called “the diminishing utility of money” can still be easily accomplished.

  5. To it is that rich people aren’t very smart or productive (defined coarsely as R+D output). If you tax them more to bring down Gini, given that any idiot Province can discover oil and lobby against a scientifically literate population, it gives you the chance to subsidize education and industrial R+D. The United States doesn’t have geniuses because they work three jobs. Pretty much left the dating game behind for good while on pogey and reading about Russian nukes and nuke scientists potentially Broken Arrow after Soros killed the country. I’ve stayed with income/housing subsidized family over the decades and always used my time to read (not the Bible).
    The rich are able to control the media and max out their political contributions. They excercise subtle CPC retarded cheerleading among their social groups and family. There are multipliers over the long-term S.Gordon not having read Chomsky, is oblivious to.

  6. …my home Province is about $50M more in debt from a lateely constructed football stadium (not the cheapest model but not too ritzy) and construction cost increases of the lately constructed Human Rights museum. The museum wasn’t even build with any curriculum in mind; it was the dying wish of a rich man and the city decided upon more murders, more crime, and a less liveable downtown instead. This wouldn’t have happened with higher historic income tax rates. The Richardson family has some good charity ideas. Their zoo improvements aren’t funded enough; it is $8.50 to see the kangaroos. It was free and $2.50 with a free Tuesday, back before said two construction projects. The tax break should go to R+D outputters (not the petro rich nor the finance rich in this land; need to be more creative than a broad stroke) and education benefits (merit based teacher compensation where teachers are graded upon individual student grade increases seems the in thing). Then weigh healthcare against debt repayment.

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