Although many Canadians pride themselves on living in a "compassionate" country, our personal income tax system has completely been drained of real compassion; it especially gouges low income earners.
Consider that when income taxes were first introduced in Canada in 1917, the government allowed citizens to earn a whopping $1,500 before they had to begin paying personal income tax. Thus, if you earned $2,000, you would have paid income taxes on only $500 of it.
Back in 1917, $1,500 was a decent threshold set by the government of the day.
To give you an idea as to how much it was worth in 1917, visit the Bank of Canada's inflation calculator on the internet. Plug in "$1,500" and "1917" in the appropriate boxes and it will calculate that $1,500 in 1917 was the equivalent of about $21,234 in 2010.
Imagine if every Canadian could earn $21,234 this year before paying income taxes? That would especially help struggling families put food on the table, pay for clothing and cover a good portion of their monthly rent.
Sadly, we're a long way away from such a compassionate tax system.
For 2010 the federal government only allowed Canadians to earn $10,382 before they started taxing people at 15 per cent. The province of Saskatchewan on the other hand allowed people to earn $13,348 before taxing them at 11 per cent.
When you combine federal and provincial income tax rates, Ernst and Young's online income tax calculator shows a Saskatchewanian earning $21,234 in 2010 paid $2,495 in combined federal and provincial income taxes in Saskatchewan.
Imagine what you could have done with an extra $2,495 last year.
You're probably wondering what happened, how did the value of the basic personal exemption become eroded over time?
The answer is simple. For years governments didn't automatically increase the original $1,500 threshold (known as the basic personal exemption) for inflation.
The bleeding stopped at the federal level in 2000 after the Canadian Taxpayers Federation (CTF) convinced Paul Martin's Liberal government to automatically index the federal tax system for inflation.Provincially, the former NDP government indexed the tax system for inflation back in 2004. However, they indexed the system for the federal inflation rate, not the provincial inflation rate.
This is significant because Saskatchewan Bureau of Statistics numbers show the provincial inflation rate has been higher than the federal rate seven times in the last nine years. In plain English, you're being taxed slightly more each year as a result of indexing to the federal rate.
Back in 2008, the government increased the basic personal exemption by a whopping $4,000. For 2011, Saskatchewan's basic personal exemption now stands at $13,535, second only to Alberta's level of $16,977.
Great progress has been made by the Saskatchewan government, but clearly there is still significant work for both them and the federal government to do. Injecting compassion back into the tax can't be done over night, but it should be made a long term priority.
Colin Craig is the Prairie Director for the Canadian Taxpayers Federation.
