Higher Taxes Ahead Sign

Provincial Race to the Top Marginal Tax Rate for Minimum Wage Employees

There is a three way race to see which provincial leader will tax a minimum wage employee at the top two tax brackets for their province.  Manitoba, Nova Scotia and PEI are the only three provinces in this race.  All three provinces are led by a provincial government that doesn't believe that purchasing power diminishes over time or they either believe that the citizens including some of the lowest paid individuals of their province deserve to have their purchasing power even further reduced.  It can't be the first one though, because all three of these provinces has seen an increase in wages for their provincial employees.
    With only a 4% annual increase in the minimum wage, Manitoba is only two terms away from having a full time employee that gets paid the minimum wage, but will still earn enough to be in the second highest tax bracket.  Manitoba is not alone; Prince Edward Island is only two years behind Manitoba.



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Credit Card Nerd Math

For Manitoba the top two tax brackets start at $31,000 and $67000 with a 12.75% and 17.4% marginal tax rate.  A full time employee will work 2080 hours in a year.  So a minimum wage employee will reach the second highest bracket when the minimum wage is $31,000/2080 = $14.90 an hour and the top bracket when the minimum wage is $67,000/2080 = $32.21.  This is assuming that you do not work any overtime or have a second job.
    In Nova Scotia the top two tax brackets start at $93,000 and $150,000 with a 17.5% and 21% marginal tax rate.  For the minimum wage to reach the top two brackets you would need to earn $44.71 and $72.12 an hour respectively.
    In PEI the top two tax brackets start at $31,984 and $63,969 with a 13.8% and 16.7% marginal tax rate.  In PEI you will need to earn $15.38 and $30.75 an hour to reach the two highest tax brackets.
    The chart below shows you how long it will take for the three provinces that do not index their tax brackets to the increase of inflation to have employee who earn the minimum wage, but pay taxes at the two highest tax brackets.  You can argue that the brackets will increase in the future, but provinces such as Manitoba have only raised the second highest bracket by 5% since 2000 so I don't see any meaningful changes any time soon without a change of attitude in the provincial government.



Projected Time Table for Minimum Wage Employees to Reach the Top Two Tax Brackets

Province

Year

Tax Rate

Manitoba

2023

12.75%

PEI

2025

13.8%

Manitoba

2043

17.4%

PEI

2043

16.7%

Nova Scotia

2052

17.5%

Nova Scotia

2064

21%


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A Wake Up Call

It is easy to become complacent about tax brackets not being indexed to inflation, mostly because the governments that don't index them, don't advertise a tax increase.  It truly is though, because they are increasing the amount of tax paid by the purchasing power amount of the dollar.
    Important Note: One of the three provincial governments are about to increase the brackets.  Unfortunately, instead of finding inefficiencies in government and indexing the existing brackets to inflation, Greg Selinger is considering adding an additional surtax above $67,000. That is one way to solve the problem of having minimum wage earners in the second highest bracket within two terms, but something tells me that he doesn't understand what the actual problem is.