In a press conference on 7 March 2019, Jason Kenney, then leader of Alberta’s official opposition, told journalists that if his party was elected in the upcoming election, they wouldn’t cut personal income tax:
We do not have the fiscal room to reduce personal income tax rates at this time and so we would be delaying that until the budget is balanced. We would then appoint a panel to advise the government on tax reform, to get the most bang for the buck in terms of 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 predicated on eliminating the carbon tax, [as well as] the job creation tax cut on employers, but no changes to the current personal income tax system.
Nearly 8 months later, the UCP released their first budget. In it, we saw—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:
- Pause indexing of non-refundable tax credits to inflation
- Pause indexing of tax bracket thresholds to inflation
- Cancel the tuition tax credit
- Cancel the education tax credit
In 2001, Ralph Klein’s government indexed the basic exemption and spouse exemption for personal income taxes to inflation. It’s stayed there ever since. Well, until 2019 anyhow.
Here’s how the exemptions work.
Anyone who makes under the basic exemption amount doesn’t need to pay income tax. Anyone whose spouse makes under the spousal exemption amount can have their income reduced by up to that amount.
However, it doesn’t apply to just those making less than those amounts. Everyone can claim those amounts, but for those making above them, it basically reduces how much taxes you owe by reducing how much you claim as income.
In 2018, the exemption in Alberta was $18,915 each for the basic amount and the spousal amount. That meant that everyone filing taxes that year reduced their income by $18,915, which effectively reduced how much personal income tax they owed. And if they were married, the total exemption amount was $37,830.
The year before, those numbers were $18,690 for one and $37,380 for both. It increased every year. Because it was indexed to inflation.
For the UCP’s first budget, it increased to $19,369 for one and $38,738 for both, an increase of 2.4%, which was how much the Alberta Consumer Price Index increased by. 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’ve kept their word. Here are the tax credits (personal and spousal exemptions are the first two lines):
And here are the tax brackets, also frozen:
In their first budget, the UCP forecasted increases to Alberta’s CPI of 1.7% for 2019, 1.8% for 2020, 1.9% for 2021, 2.0% for 2022, and 2.0% for 2023.
If the UCP had kept the exemptions indexed to CPI, they would’ve increased to $19,698 in 2019, $20,053 in 2020, $20,434 in 2021, $20,843 in 2022, and $21,259 in 2023. Double that for both exemption amounts.
Assuming that the UCP government doesn’t reindex the exemptions to CPI prior to 2023—and they haven’t in the first 2 years—that means taxpayers are paying increasingly more in personal income tax every 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 that if you claim the spousal amount on your personal income tax return. Taxpayers potentially would have to pay as much as $378 more in income tax by 2023.
And that’s just the exception amounts, but it’s the same issue with tax brackets.
In Alberta, we had 5 tax brackets in 2019:
|Up to $131,220||10%|
|$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 up||15%|
Every year, the threshold on each bracket increased to match inflation increases.
For example, the lowest tax bracket threshold increased from $128,145 in 2018 to $131,220 in 2019, an increase of 2.4%, the same as CPI for that year.
What that means is that anyone who made $128,145 or under in 2018 paid only 10% in income tax, and everyone who made above that paid only 10% on the amount under $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 increasing, meaning it would keep people in the lower tax bracket for longer.
But the threshold is staying put, so people are more likely to move into higher tax brackets as they get raises, leading to more taxes owed for those who do.
The UCP estimated that the pausing of indexing for both the exemption amounts and the bracket thresholds would “reduce tax expenditures” by over $600 million by the end of the 2022–23 budget year.
And reducing expenditures by $600 million sounds like a good thing. Except this is a sleight of hand. That’s not how much they’ll be reducing spending by; that’s how much taxpayers will be paying more in personal income tax.
- 2019–20: $20 million more in personal income tax
- 2020–21: $98 million more in personal income tax
- 2021–22: $196 million more in personal income tax
- 2022–23: $286 million more in personal income tax
Given that 93.3% of personal income tax is generated on income in the first tax bracket, it won’t be the high incomes bearing the brunt of these increases.
Keep in mind, that these numbers 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 CPI plays out.
For example, a report from ATB Economics this past October had placed Alberta’s inflation rate at 1.7% in 2019 and 1.1% in 2020. The forecast for 2019 in the first budget was right on the nose at 1.7%, but they were off slightly for 2020, which they’d predicted would be 1.8%.
A report from last month pegs 2021 inflation at 3.2%, significantly higher than the 1.9% the originally predicted for this year.
If this keeps up, we might actually be paying even more than $286 million in personal income tax than originally forecasted.
Of course, that’s not even including the tuition and education tax credits. These credits reduced the amount of income tax owed by postsecondary students.
With their cancellation, these students will collectively pay more in personal income taxes:
- 2019–20: $20 million more in personal income tax
- 2020–21: $90 million more in personal income tax
- 2021–22: $115 million more in personal income tax
So much for no changes to the current personal income tax system.
Speaking of no longer indexing to inflation, these changes don’t include the deindexing of several other programmes:
- Alberta Seniors Benefit
- Special Needs Assistance
- Supplementary Accommodations Benefit
- Seniors Lodge Assistance
Because AISH funding would effectively be frozen instead of increased to match inflation, it would—to use the words of the 2019–2020 budget—“reduce costs by $10 million” in the first year. In other words, they’d spend $10 million less on AISH in their first budget year than they had planned. Effectively cutting AISH by $10 million.
Pausing inflation indexing on the four senior programmes listed above would “reduce costs by $55 million over four years”. Effectively, the UCP would cut spending on those programmes by an average of nearly $14 million a year.
If we ever get to the point where “the economic and fiscal situation can support it”, I wonder if the UCP will make up for the lost indexed amounts, or if they’ll just start where they are.