Squeezed from both ends


A look at effective tax rates across provinces shows that many low-income families in Canada take home 40 cents or less on the additional dollars they earn.

The marginal effective tax rate – which accounts for how much you pay in additional income taxes and lose in federal and provincial transfer benefits when you earn an extra dollar – is highest for families earning modest incomes.

This is concerning from a policy perspective, given how the tax and transfer system changes the incentives for individuals and families to take on productive income-earning work.

Marginal effective tax rates (METRs) across provinces offer very low net-of-tax returns to earnings in the low-to-middle-income range. That reduces incentives and possibly discourages Canadians from earning extra income.

For a family of four with two earners making roughly $40,000 and two children, the METR on additional earnings exceeds 50 per cent in Prince Edward Island, Nova Scotia, New Brunswick, Ontario, Manitoba and Alberta. This same family would face a METR exceeding 70 per cent in Quebec and just shy of 70 per cent in Newfoundland.
Conversations and analyses on the personal income tax system in Canada tend to focus on statutory tax rates – the progressive system where incremental income is taxed at increasingly higher rates. But in assessing the overall impact of the tax-and-transfer system on individuals and families, the statutory rate on income is only part of the story.

The real question is how much money do we bring home when we earn an additional dollar?

To answer, we must account for all income-tested transfer benefits such as the federal Canada Child Benefit or Alberta’s Family Employment Tax Credit. Because these benefits are clawed back as additional income is earned, we factor in these reductions in addition to statutory income taxes. Both reduce the amount of money that actually makes it into an earner’s pocket.

We can think of it like this: when a dollar earned triggers higher taxes and simultaneously reduces benefits, what’s left to spend or save? This is the net-of-tax-and-transfer earnings, and it’s the result of complex interaction between earnings, transfer programs, tax credits and taxation of income.

As net-of-tax-and-transfer earnings fall below 50, 40 and even 30 cents on the dollar, we must ask how an individual’s incentives to seek additional earnings are affected. When net-of-tax-and-transfer earnings are significantly diminished, producing 40 cents of spendable income for every dollar earned, how many Canadians will respond and take on additional hours?

In surveying the METRs across provinces, one arrives at the unavoidable and troubling conclusion that individuals and families with relatively modest incomes face extremely burdensome effective tax rates, often higher than those in the top-income brackets.

This is troubling because numerous international economic studies suggest that such high rates undoubtedly diminish incentives to seek additional income and, by extension, likely create barriers to upward mobility. This dynamic disproportionately affects women, especially mothers who are often the secondary earner in a family.

This is a problem with clear solutions. Low-income individuals and families facing high METRs would benefit from:

  • lower claw-back rates on their income-tested transfers;
  • higher-income thresholds before they face reductions;
  • an increase in the basic exemption amount on earned income,
  • lower statutory tax rates on employment income they earn.

All these would push down those peak METR rates. And all of those remedies mean less tax revenue or higher benefit spending by governments. And when governments are fiscally pinched, they’re tempted to push the tax burden onto other groups, with potential political costs.

Given the tradeoffs and the costs involved, high marginal effective tax rates on families with low and modest income will be a continuing challenge in Canada. We should, however, be aware of the issues and keep governments on their toes when they propose increasing benefits or tax rates without an eye on the bigger picture.

Philip Bazel is an associate at the School of Public Policy at the University of Calgary and author of the recent Fraser Institute study Marginal Effective Tax Rates Across Provinces: High Rates on Low Income.

– Troy Media


Who's sickest of them all?

Government employees may want to start wearing a medical mask to the office.

That’s because there might be something contagious in the office air. Or possibly the office water. The exact cause isn’t clear, but bureaucrats from across the land appear to falling ill at a much greater rate than the rest of us.

A recent analysis of Statistics Canada data by the Canadian Taxpayers Federation shows that the number of sick days taken by bureaucrats is considerably higher than their counterparts outside of government.

For example, in 2018, federal government employees took an average of 12.2 sick days per year, compared to the national private sector average of just 6.9 days, a difference of 77 per cent.

It’s even worse in Alberta, where provincial government employees took an average of 14.4 sick days, compared to 5.7 in the private sector, a whopping 153 per cent difference.

Across the board, in province after province, there’s a consistent pattern: if you’re in government, you’re taking more sick days. Sniffle, sniffle.

It’s certainly a bit of a puzzle. If anything, given how well they are taken care of in terms of compensation and job security, you might expect government employees to be well-placed to be healthier, not sicker, than the rest of us.

After all, they tend to have higher salaries, earning around 10 per cent more than those working in the private sector, and far more generous pensions – mostly paid for by beleaguered taxpayers toiling away outside government.

And speaking of taxpayers, this government sick-day phenomenon – we could also invent a clinical term, bureaucratitis – is costing us all dearly.

The federal government alone has over 260,000 people on its payroll. Multiply that by the gap between government and private sector sick days – 5.3 – and it works out to a staggering 1.37 million lost days of work in just one year.

It’s the equivalent of having over 5,200 federal bureaucrats calling in sick on any given weekday.

Worst of all, such maladies appear to be part of an inexplicable nationwide trend hitting unsuspecting government employees over the years, appearing without apparent rhyme or reason.  

For example, in 2013, illness disproportionately struck Saskatchewan provincial government employees on the day after the Roughriders Grey Cup parade, while in 2014 a swathe of their Nova Scotia counterparts tragically fell sick on the day after the Canadian men’s hockey team beat Latvia 2-1 at the Winter Olympics.   

In 2016, oddly, illness seemed to strike Quebec provincial bureaucrats heavily on Mondays and Fridays, while leaving them relatively unscathed in the middle of the work week.

At least one thing is clear: we need to get to the bottom of this mysterious trend causing thousands of extra taxpayer-funded absences every day.

We can’t stand idly by while government employees suffer quietly through these afflictions, especially with them coming right after major sporting events and on days right before or after weekends. 

If nothing else, we owe it to them to help figure out what is preventing them from doing the jobs taxpayers are paying them to do.

– Aaron Wudrick is federal director of the Canadian Taxpayers Federation

Better off in Canada

Regardless of whether America is great, or about to be great again, a new analysis shows that Canadians outrank Americans on household income.

The Economist magazine recently devoted a long section to a profile of Canada with frequent comparisons to the United States. Among the statistics highlighted were that Canadians’ life expectancy was three years greater than in the U.S., that Canada has about one-20th the number of gun homicides per 100,000 people, and that Canada produces about 30 times as much maple syrup per capita.

When it comes to the overall economy, the Economist pointed to a substantial decrease in Canada’s labour productivity in comparison to the U.S. over the past 30 years. But, importantly, the median Canadian household income is actually higher than in the U.S.

The Economist briefly quoted this statistic which is based on a recent study by the Canadian Centre for the Study of Living Standards. It carefully examined household income distributions from both sides of the border – using detailed survey data for 2016 from Statistics Canada and the U.S. Census Bureau. The analysis ranked households by their total income, and even though the U.S. has about 10 times the population, the lineups were scaled to show comparable percentages of households.

We can view these lineups as two parallel parades (a metaphor popularized by economist Jan Pen in the 1960s). On one side of the parade stand we see the Canadian households, while on the other, U.S. households are ready to start passing by. These two parades have been set up to take exactly one hour for each to pass by. Further, let’s imagine that the height of each household is exactly proportional to their income, with households at the average income being at eye level.

The parade starts with the households having the lowest incomes. At the six-minute mark into the parade (the first 10 per cent), these households are so short they would barely come up to our knees. On the Canadian side of the parade stand, these households are about 25 per cent taller than the U.S. households.

At the 15-minute mark, the Canadian households are up to our waists, and are about 10 per cent taller than their U.S. counterparts. Even at the halfway point, in this parallel parade, the 30-minute mark, the Canadian households are taller than those in the U.S. It is only a few minutes later, at the 56th percentile of the household populations, that the U.S. households are just as tall as their Canadian counterparts.

In other words, when we examine household income, the money people have in their pockets, rather than gross domestic product (GDP) which includes all sorts of other things, the median Canadian household is better off than their U.S. counterpart.

As the parade continues, though, the U.S. households become increasingly taller than the Canadian households as they both pass by the parade stand at the same time. Households at eye-level pass by shortly before the 40-minute mark. These households have average incomes and, because the distributions on both sides of the border are skewed toward higher incomes, the average income is higher than the median, the income we saw at the halfway mark.

By the 54-minute mark, when 90 per cent of the households have passed by, we are looking at U.S. households that are three times as tall as those we saw at the 30-minute mark, while Canadian households at this point are about two and a quarter times as tall. And in the last 40 seconds, as those in the top one per cent are passing by, they are about 15 times as tall as those at the halfway mark on the U.S. side of the parade, while on the Canadian side these top 1-per-cent households are about seven times as tall.

A key factor in this comparison of household incomes between the U.S. and Canada is the conversion factor. While the exchange rate was around 75 cents in 2016, the CSLS used a much better basis for converting between U.S. and Canadian-dollar incomes, purchasing power parity (PPP). This factor is essentially a price index, based on direct comparisons of the prices of hundreds of different commodities in the two countries, from cars to computers. The bilateral Canada-US PPP produced by Statistics Canada pegged this factor at 84.1 US cents for one Canadian dollar in 2016.

So not only do households in the U.S. live with much higher income inequality than in Canada, more than half are actually worse off in terms of everyday purchasing power.

Michael Wolfson, PhD, is a former assistant chief statistician at Statistics Canada, and currently a member of the Centre for Health Law, Policy and Ethics at the University of Ottawa.

– Troy Media


Legislature blame game

“It's your fault.” “No it's not, it's yours.” “Stop bickering, why don't we all just agree to blame it on the Speaker?” “We can't do that.” “Why not? It makes perfect sense and it gets us all off the hook at the same time.”

Hate to break up the blame game, but no matter how much a few MLAs want to lay it at someone else's doorstep, the fault belongs entirely to the members of the Legislative Assembly Management Committee.

Interesting dynamics among some of its members. Two key ones are Sonia Furstenau and Mary Polak.

One could argue that Polak did more to bring about a new government in B.C. than the Speaker, Darry Plecas, ever did when he opted to become Speaker to help keep the legislature working.

Had it not been for Polak's mishandling of the Cobble Hill Holdings' quarry at Shawnigan Lake, when she was environment minister, the B.C. Liberal party might still be in power. 

One of the individuals squaring off against the ministry back then was Furstenau, now a Green party MLA, and the quarry is often cited as one of the reasons why the Greens opted to support the NDP.

Attacking Plecas, directly – or by proxy through his chief of staff Alan Mullen – does seem to be the in-thing with a few members of LAMC, versus rolling up their sleeves and helping to fix the mess.

A mess that has been 'the orders of the day' at the legislature long before May 2013, when Plecas was first elected as an MLA, as most everyone at the legislature knows well.

You come away with an eerie sense of déjà vu reading the reports. One of the first early warnings came in 2000, nearly two decades ago. 

In 2000, B.C.'s then auditor general, George L. Morfitt, in his Financial Administration of Vote 1 report – nothing like a catchy title – recommended that “LAMC provide an annual public report on the reasons for variances between budgeted and actual amounts.”

In a 2007 Special Audit Report to the Speaker, then-interim auditor general Arn Van Iersel, “identified a number of areas for improvement such as general accounting, internal controls, data management, and public reporting.”

By 2012, an exasperated auditor general John Doyle, informed LAMC that “he (had) anticipated that the Legislative Assembly would meet the basic financial management practices and accounting standards requirements established for the rest of government. However, the Legislative Assembly is clearly falling well short of these basic expectations.”

Doyle noted that he had not “been provided the opportunity to discuss any aspect of this audit with LAMC, as is typical practice, especially given the pervasive and significant nature of the issues identified.”

Yet again, the auditor general noted: “the Legislative Assembly does not produce financial statements (despite being recommended to do so in the 2007 report).”

In 2013, the report on those infamous retirement top ups, plus more on that dastardly paperwork thing.

The draft of that report was likely in the hands of then-Speaker Bill Barisoff weeks before its release, as is standard practice. It's an important yard stick to judge the actions of individuals.

Remember that South African 'safari' former speaker Linda Reid and her husband took in 2013, while attending the Commonwealth Parliamentary Association conference? 

Here's how the Times Colonist put it in an editorial in March 2014: “Stop talking about transparency and accountability, and walk the talk. Do it now, not at some fuzzy future date following a series of namby-pamby committee meetings and policy-planning sessions.”

The two frequent flyers at the legislature held their spending to a combined $34,572 in the following fiscal year, before the pair's tab jumped to $99,685 the next. 

Slice it any way you want, but at the end of the day their record speaks for itself, LAMC failed to step up time and again and it's exactly where the buck stops today.

No one is coming out of this one without a few bruises and nicks. Want to speed things along? Get over your petty intra and inter-party spats and get on with it.

– Dermod Travis is the executive director of IntegrityBC

Stigma - words matter

Getting clean ... junkie ... addict ... dirty needles. 

The language we use to refer to people with substance use disorders can elicit many negative stereotypes. 

Substance use disorders are more highly stigmatized than any other health condition. This is largely due to the misinformed notion that addiction is some form of moral failing. Research shows many people with substance use challenges have also experienced trauma and violence, making them vulnerable and putting them at further risk of self-stigma by internalizing the negative messages they hear all around them.  

Stigmatizing language can also have serious negative impacts on the family and friends of those with a substance use disorder, or those lost to overdose. 

Stigma is a major barrier preventing people from getting well. When we use stigmatizing language, we prevent people from reaching out for help. This applies to the person with a substance use disorder, but also to their loved ones.

The shame caused by stigma also drives people to use alone, putting them at increased risk of harm.

Research about the impact of stigma has demonstrated that although people who use drugs alone understand the risks of a fatal overdose, the shame of coming forward and seeking help is felt so strongly that they choose to hide their drug use. Some people also feel stigma about carrying a naloxone kit. The stigma continues if a person is receiving methadone or Suboxone with the sense that ‘you are treating a drug with a drug’.

In summary, some people feel stigmatized for using drugs, stigmatized for trying to reduce the risk of overdose, and stigmatized for seeking treatment.

BC Centre for Disease Control research outlines the stigmatizing language often used to describe substance use. It encourages language that is person-first (‘person who uses opioids’ rather than ‘addict’) emphasizes the medical nature of substance use disorders (‘person experiencing problems with substance use’ rather than ‘drug abuser’ or ‘junkie’), and promotes recovery (‘person experiencing barriers to accessing service’ rather than ‘unmotivated’ or ‘non-compliant’) .

I encourage you to think about the language you use and how that might impact someone living with a substance use disorder. Think about how that language would sound to a mother who just lost a son, or someone grieving the loss of their best friend. 

The overdose crisis continues – in 2018, one life was lost every two hours in Canada. It can happen to anyone.

It's important that we reduce stigma around people who use drugs and ensure that everyone has access to the health-care services they need, where and when they need them. 

For more information on how you can help reduce stigma, please visit the StopOverdoseBC website.

– Corinne Dolman is director of substance use with Interior Health

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