Will the PEI government fix the bracket creep loophole?

Tax burden
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Renaud BrossardIf a business overcharged you by $450, you might want an explanation. The least that business could do is stop overcharging you in the future. Prices for everything from groceries to gasoline are going up fast enough without overcharges on top.

Prince Edward Island MLAs owe Islanders an explanation about their income tax bills.

The average family would have an extra $450 in their pockets if the government hadn’t used a loophole in the tax code known as bracket creep to increase everybody’s taxes for the past 14 years.

Here’s how it works.

You’ve probably already noticed a $20 bill buys much less today than it used to buy back in 2008. In fact, it buys about 36 per cent less, according to Statistics Canada.

This drop in purchasing power is commonly referred to as inflation. It essentially means that a $50,000 salary in Prince Edward Island this year is equivalent to earning $36,910 back in 2008.

The problem is that the province’s tax code has not been adjusted to reflect this loss in purchasing power. The last time the government changed the brackets was back in 2008.

Keep an Eye on PEI

As a result, the government has pushed more and more of your income into higher tax brackets year after year.

An Islander making $50,000 today is now paying $453.71 extra in income taxes because the provincial government failed to adjust tax brackets to inflation.

Most other provinces, much like the federal government, have fixed this problem.

Every year, they use Statistics Canada’s data to tweak their tax brackets a bit and make sure the tax code doesn’t push down your standard of living because of inflation.

Only Alberta, Nova Scotia and Prince Edward Island fail to adjust any of their brackets in such a way.

And the impact on taxpayers is quite clear. Just across the bridge, in New Brunswick, the government adjusted the threshold at which its taxpayers get bumped into the second tax bracket by $1,052 this year. This prevented the province’s taxpayers from suffering a $100 tax hike this year.

There’s no good reason why Islanders should be condemned to go through chronic tax hikes because of bracket creep.

And it seems like the government is slowly realizing that fact.

Government Whip Cory Deagle asked Finance Minister Darlene Compton if her department would get rid of bracket creep. His exact words were: “Will your department index tax brackets so they increase year after year by the rate of inflation like most other Canadian provinces already do?”

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Before Compton could respond, Deagle’s question was cheered by both Liberal Whip Robert Henderson and Premier Dennis King.

Compton vaguely responded that it’s something the department is looking at. Given that both the premier and Opposition are applauding the obvious idea, she would be silly to dilly dally on bracket creep. Politicians on all sides know that indexation is long overdue on the Island.

Let’s be clear: bracket creep has cost taxpayers too much for too long. Now that we’re dealing with an 8.9 per cent inflation this year, the situation is more dire.

The last thing Islanders need right now is a 15th consecutive tax hike on top of their rising bills.

The provincial government should have fixed bracket creep long ago.

But the least it can do is start indexing tax brackets to inflation to stop overcharging taxpayers in the future.

Renaud Brossard is Interim Atlantic Director for the Canadian Taxpayers Federation.

Renaud is a Troy Media Thought Leader. For interview requests, click here.

The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.

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By Renaud Brossard

A business graduate from École des sciences de la gestion at Université du Québec à Montréal (ESG UQAM), Renaud Brossard has always been drawn to politics. First getting involved in politics at the age of eighteen, he quickly left partisan politics, preferring to focus on getting his ideals implemented instead of simply getting some guy elected.

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