Thursday, February 20, 2003

Still providing the footnote at the bottom for people with a little extra room.

Liberals' tax beaks working mainly for the rich
By Paul Willcocks
VICTORIA - The Liberals have proved their critics right. Their tax policies have worked a lot better for the rich than they have for most people in the province.
Finance Minister Gary Collins disagreed when that proposition was put to him in the budget lock-up. But the numbers tell the story.
The Liberals pitched their 25-per-cent income tax cut - delivered on their first day in office - as a benefit to all taxpayers. That was true, although the benefit was a lot greater for people being paid lots of money. A single person with a $125,000 income got a $4,260 tax cut; a person being paid $40,000 got a $670 break.
Nothing particularly wrong with that. A progressive tax system means the more you earn the more you pay. When it comes for a reduction, the same principle works in reverse.
But since then the Liberals have introduced a string of new taxes, fees and increases, which have hit all taxpayers with the same weight.
Medical Service Premiums jumped 50 per cent, taking $219 a year from both taxpayers' pockets. The new gas tax will take another $120. Driver's licence renewal, $7. A week in a provincial campground and a few walks in a popular park another $46. Education property tax increase, maybe $20. Sales tax increases vary because rich people spend more, so figure $40 more for the middle-income earner and $85 for the $125,000 man.
It's not an exhaustive list, and doesn't include costs imposed because of cuts to medical insurance coverage and other fees.
But add it up, and you find out that $450 of the middle-income earners' tax cut has been clawed back. His net benefit is now $220, about $4 a week.
For the $125,000 man the new taxes and charges will cost $500, leaving him with $3,760 in tax savings.
What's it mean? Actual tax cut for the middle-income earner, about eight per cent. For the big earner, 22 per cent.
And do the same math, and you'll find that for anyone earning less than $35,000, the tax cut benefits have been wiped out and they're paying more now than they did when the Liberals took power.
That wasn't what the Liberals promised. In the election campaign they never talked about a big tax break for the rich, or an immediate across-the-board 25-per-cent tax cut. The only commitment was that within four years people in the bottom two tax brackets would benefit from the lowest tax rates in Canada.
They do. But they've also seen much of that clawed back. The Liberals cut personal income taxes by $1.5 billion and business taxes by about $700 million. Since then, they've taken back about $1 billion in new taxes and fees, with more to come.
And in the process, they've cut services and shifted the cost of government off the income tax system - which is progressive - and on to fees and flat taxes. The cost of government has been shifted from the highest-earning British Columbians to the middle-income groups.
The odd thing is that economists can make a good argument that the only cuts the Liberals should have made were reductions for high-income earners and businesses. If the goal is to encourage investment and business group, the tax system has to be competitive for the people who are most mobile, and the most important to attract.
Someone who is earning $40,000 a year isn't going to decide to move to Alberta for the tax benefits; someone being paid $200,000 - or looking to recruit people to run a business - may consider the tax system in deciding where to live or invest.
UBC economist Jon Kesselman notes Saskatchewan, faced with the same issues, only cut top tax rates, telling the public that was the best way to ensure a competitive business environment while protecting services.
It's an approach that looks fairer - and more open - than B.C.'s vanishing tax breaks for low and middle-income earners.
Footnote: Are the tax cuts paying for themselves? Income tax produced $6 billion for government services before the cuts. This year they will be about $4.2 billion. At the curent rate it will be 2008 before they have recovered. Not necessarily bad; but not what the Liberals promised.

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