UCP raises personal income tax by $286 million in 2022

At a press conference On March 7, 2019, Jason Kenney, then leader of Alberta’s Official Opposition, told reporters that if his party were elected in the next election, he would not cut personal income taxes:

We don’t have the fiscal flexibility to reduce personal income tax rates right now, so we would delay that until the budget is balanced. We would then appoint a panel of experts to advise the government on tax reform, to get the best value for jobs and growth through tax policy. So I don’t think that will happen in the first term of our government. Our platform would be based on eliminating the carbon tax, [as well as] the job creation tax reduction for employers, but no change to the current personal income tax system.

Almost 8 months later, the UCP published its first budget. It included — well — changes to the personal income tax system.

In fact, there were 4 specific changes that directly affected how much Alberta taxpayers would pay in personal income tax:

  1. Suspend the indexation of non-refundable tax credits to inflation
  2. Suspend indexation of tax bracket thresholds to inflation
  3. Cancel the tuition tax credit
  4. Cancel the education tax credit

In 2001, the government of Ralph Klein indexed the basic exemption and the spousal exemption for personal income tax to inflation. It has remained there ever since. Well, until 2019 anyway.

Here’s how exemptions work.

Anyone earning less than the basic exemption amount does not have to pay income tax. Anyone whose spouse earns under the spousal exemption amount may have their income reduced by up to this amount.

However, this does not only apply to those earning less than these amounts. Anyone can claim these amounts, but for those earning above them, it essentially reduces the amount of taxes you owe by reducing the amount you claim as income.

In 2018, the exemption in Alberta was $18,915 for the basic amount and the spousal amount. This meant that anyone filing taxes that year reduced their income by $18,915, effectively reducing the amount of personal income tax they owed. And if they were married, the total amount of the exemption was $37,830.

The previous year, those figures were $18,690 for one and $37,380 for two. It has increased every year. Because it was indexed to inflation.

For the UCP’s first budget, it rose to $19,369 for one and $38,738 for both, an increase of 2.4%, or how much the consumer price index of Alberta increased. And their plan is to keep them there until “the economic and fiscal situation can support it”.

And as we can see in both the 2020-2021 budget and the 2021-2022 budget, they kept their word. Here are the tax credits (the personal and spousal exemptions are the first two lines):

And here are the tax brackets, also frozen:

In its first budget, the UCP forecast Alberta CPI increases of 1.7% for 2019, 1.8% for 2020, 1.9% for 2021, 2.0% for 2022 and 2, 0% for 2023.

Had the UCP maintained the CPI-indexed exemptions, they would have increased to $19,698 in 2019, $20,053 in 2020, $20,434 in 2021, $20,843 in 2022, and $21,259 in 2023. The double for the two exemption amounts.

Assuming the UCP government doesn’t re-index the CPI exemptions until 2023 – and they haven’t for the first 2 years – that means taxpayers are paying more and more income tax from individuals each year.

  • 2019: $33 more in personal income tax
  • 2020: $68 more in personal income tax
  • 2021: $107 more in personal income tax
  • 2022: $147 more in personal income tax
  • 2023: $189 more in personal income tax

Of course, double this amount if you are claiming the spousal amount on your personal income tax return. Taxpayers could potentially pay up to $378 more in income tax by 2023.

And those are just the exception amounts, but it’s the same problem with tax brackets.

In Alberta, we had 5 tax brackets in 2019:

Income Tax rate
Up to $131,220 ten%
$131,220.01 to $157,464 12%
$157,464.01 to $209,952 13%
$209,952.01 to $314,928 14%
$314,928.01 and more 15%

Each year, the threshold for each band has increased to match increases in inflation.

For example, the threshold for the lowest tax bracket increased from $128,145 in 2018 to $131,220 in 2019, an increase of 2.4%, identical to the CPI for that year.

This means that anyone who earned $128,145 or less in 2018 only paid 10% income tax, and anyone who earned more only paid 10% on the amount below $128,145.

The 2019 change meant that the 10% rate now applied to anything under $131,220, not just $128,145.

And if the UCP hadn’t changed things, that threshold would keep rising, which would mean it would keep people in the lower tax bracket for longer.

But the threshold remains unchanged, so people are more likely to move to higher tax brackets as they get raises, resulting in more taxes owed for those who do.

The UCP estimated that suspending the indexation of exemption amounts and bracket thresholds would “reduce tax expenditures” by more than $600 million by the end of the 2022-23 fiscal year.

And cutting spending by $600 million seems like a good thing. Except it’s a sleight of hand. It’s not how much they’ll cut spending; it is the amount that taxpayers will pay additionally in personal income tax.

  • 2019-2020: $20 million more in personal income tax
  • 2020-2021: $98 million more in personal income tax
  • 2021-2022: $196 million more in personal income tax
  • 2022-2023: $286 million more in personal income tax

Since 93.3% of personal income tax is generated on income from the first tax bracket, it will not be high incomes who will bear the brunt of these increases.

Remember that these figures are based on the CPI forecast from the 2019-2020 budget. With the changes in the economy in 2020, these numbers could be higher or lower, depending on how the CPI moves.

For example, a report by ATB Economics last October had put Alberta’s inflation rate at 1.7% in 2019 and 1.1% in 2020. The forecast for 2019 in the first budget was right at 1.7%, but they were down slightly for 2020, which they estimate would be 1.8%.

A report from last month sets 2021 inflation at 3.2%, significantly higher than the 1.9% originally forecast for this year.

If this continues, we could actually pay another $286 million more in personal income tax than originally estimated.

Of course, that doesn’t even include tuition and education tax credits. These credits reduced the amount of income tax owed by post-secondary students.

With their cancellation, these students will collectively pay more personal income taxes:

  • 2019-2020: $20 million more in personal income tax
  • 2020-2021: $90 million more in personal income tax
  • 2021-2022: $115 million more in personal income tax

Too bad for no change to the current personal income tax system.

Speaking of no longer indexing to inflation, these changes do not include the de-indexing of several other programs:

  • ISSA
  • Alberta Seniors Benefit
  • Help with special needs
  • Additional housing allowance
  • Help at the pavilion for the elderly

Since IAHS funding would effectively be frozen instead of being increased to match inflation, it would reduce – in the words of the 2019-20 budget – “costs by $10 million” in the first year. . In other words, they would spend $10 million less on AISH in their first fiscal year than they had planned. Effectively reducing AISH by $10 million.

Suspending inflation indexing on the four senior programs listed above “would reduce costs by $55 million over four years.” Indeed, the UCP would reduce spending on these programs by nearly $14 million per year on average.

If we ever get to the point where “the economic and fiscal situation can support it”, I wonder if the UCP will compensate for the indexed amounts lost, or if they will just start where they are.

Support independent journalism

Comments are closed.