In Support of Lower Income Earners
Posted June 19, 2015
It is very difficult to get by on a minimum wage in Nova Scotia. At the same time, we subsidize the production of greenhouse gases. We can do better.
There have been a number of recent public discussions about how to support low-income earners.
Some advocate for a guaranteed annual income of as much as $20,000. That amount is barely enough to get by. But, together with the cost of leaving home to be at an employer (transportation, work attire, child care, time unavailable to maintain residence), a guaranteed income represents an enormous disincentive to work. And the cost of such a program would require very large tax increases for all workers. It’s a bad idea.
Others have argued for an increase in minimum wages. Nova Scotia’s minimum of $10.60 per hour is not out of line with Canadian provinces today, and is higher than most American states. But some jurisdictions, such as Alberta and Los Angeles, are considering increasing their floor to as much as $15.00.
Employers will argue that raising the minimum wage will cause job losses if it makes them uncompetitive. This argument can be overstated.
It certainly does not apply to workers in areas where there is no competition from other jurisdictions such as government, health care, grocery stores and pharmacies, gas stations, and many service providers such as cleaners.
It may apply a little to fast food restaurants, which have to compete with eating at home. But the slight impact on the cost of a meal at a high end restaurant is unlikely to discourage customers.
The minimum wage in Nova Scotia increased from $7.60 in 2007 to $10.60 in 2015. Yet, employment in the Food and Accommodation sector, which has the largest number of minimum wage workers, increased 3.7% to 30,900 while overall employment grew only 1.6%.
The biggest concern in raising the minimum will be for businesses that have to compete with other parts of Canada and the world. For example, markets set the price for fresh lobster delivered to Boston. If fish plant workers are getting paid more, those who caught the fish are going to be paid less. In a bad year, harvesters will lose money.
If pay for workers at a manufacturing plant makes it uncompetitive, they risk having the whole plant shut down, possibly to have the work shifted elsewhere for the same employer.
Maintaining these export-oriented jobs is crucial to our future so a $15 minimum wage is not the right choice, but we should be willing to be above the Canadian average to the extent possible without jeopardizing export-oriented jobs.
It is also possible to provide some tax help to low income earners. Except for Prince Edward Island, we have the lowest basic income tax credit of any province in Canada, at $8,481. The federal exemption is $11,327. By raising our exemption to the federal level, we would save low income households $250 a year in tax.
It is not a lot, but it is useful. To make sure the saving is focused on low income earners, the tax rates could have to be raised (for example) on income between $20,000 and $100,000 by .31% so that earners above $100,000 would see no benefit.
Everyone under that level would enjoy some tax reduction, so the cost of such a change would be substantial—likely between $50 and $100 million. How should we pay for it?
Also much in the news these days is the notion of a tax on carbon or, more precisely, on activities which increase greenhouse gases such as carbon dioxide. The argument is that by raising the price, people will be incentivized to reduce usage or find renewable alternatives. Such a tax has been implemented in British Columbia, on a more or less revenue-neutral basis.
In Nova Scotia, rather than taxing carbon emissions, we are subsidizing them. How can that happen? The NDP introduced a rebate on the provincial portion of HST on home heating fuels (all of which are carbon based) and electricity (about three quarters of which is carbon based, mostly burning imported coal). It was a clever political idea, but really bad policy.
That subsidy will cost $117 million this year. The biggest beneficiaries are high income earners who can afford large homes with hot tubs, fireplaces, fancy appliances, and multiple electronic devices.
We should eliminate the subsidy and use the money to reduce taxes for low income earners. Increasing the basic income tax credit will use more than half.
The rest of the proceeds from eliminating the subsidy can be used to especially benefit those earning less than $15 per hour, by lowering the tax rates on the first $20,000 of taxable income.
It is both socially and economically better to have people working rather than sitting at home. Let’s minimize the obstacles. Workers earnings low incomes should be taxed as little as possible.
Related ArticlesBudget Season
- What the Budget was Missing October 6, 2017
- The Tax Changes Proposed for Small Businesses will have Side Effects August 25, 2017
- Drinking Local: Round Two January 20, 2017