Paying the Piper
January 1st 2012 will see the largest increase in Federal payroll tax deductions in a decade, to the tune of a whopping %4.84 which equates to an extra $4.84 for every $100 dollars you earn on your paycheck to a maximum of $242.07 (per month) off your income – or $3,147.00 per year.
This ‘Maximum’ line set by the Conservative Government’s infinite wisdom and kindness, using forensic math*, is therefore drawn at $1,250 per week – as such, those who earn more than $65,000 per year will pay a ‘ceiling’ rate maximum and lose a relatively smaller percentage of their income to this increase. However, most Canadians earn much less than $65,000 per year and will bear the full brunt directly from their disposable income after necessities: which also per Canada Census Information is drawn at $15,000 (LICO) – and is not set to ‘decrease’ anytime soon.
The Median Income (for the sake of this paper is per person…not “Household”) established by 2007 Census numbers in Canada is $35,000 or $673 per week. This Payroll Tax increase will mean that, on this income, Canadians will pay an extra $32/week or $1,664 per year directly from their pocket.
Assuming that the country has an available workforce of 20,000,000 people this will introduce $33,280,000,000 in new federal revenue.
Wait, But that’s Not all…Order now and you’ll get…
Quebec, not to be outdone by Ottawa, will be increasing their sales tax by %1 also on January 1st. So, as if losing $1,664 per year on your income wasn’t enough already Mr Average – consider that the rest of your disposible income after this new slice and necessities will be taxed at a whole percentage point more. Using the figures above, someone earning $35,000pa after the payroll tax will have $33,336 – and removing the LICO average expenditures for Shelter, Food, Energy and Transportation of approx $15,000 this leaves $18,336. Assuming all this disposible income is spent at a cash register, with an HST of %15.5, and Mr. Average loses yet another $2,842 (Including the extra %1 or an $183 annual increase) from his wallet and purchasing power leaving $15,994 for Mr Average to spend in the Consumer Economy.
This is a province wide loss of $19,894,000,000 or less (HST %15.5) from Consumer spending and equal return into provincial coffers – in a province of 7,000,000 people. People might not think they’ll spend less, but they will.
But I’m not Done!
The Consumer Price Index on a basket of items increases an average of %2.2 per year, that is the objective of the Bank of Canada to maintain healthy Growth. That being said, a basket of groceries that costs you $100 one year should in a healthy economy cost you $102.20 the next year. In the recent years since the recession we all know that percentage has increade far more than that but for the sake of this paper let’s assume that number to be static. If $7000 of the LICO mean goes towards rental/mortgage let’s assume that at least $3500 goes towards those baskets of food. Add %2.2 and you have a basket worth $3577, a further reduction of $77pa on Mr. Average’s income. This number for unavoidable expenditure, as I stated, will probably amount to be more.
The Good News?
Considering the Canada wide average wage increase has been steady at %1.2 since 1992, Mr Average can expect his income to increase %1.2, or $420 in that same time to cover what amounts to an drain of $4,583 against Mr. Average’s available annual disposable income. So Merry Christmas, Mr Average, be thankful at least it was only %12 in total. Remember, as you slide down the income scale that %12 becomes higher because, at the risk of sounding socialist, the cost of necessities are the same for everyone.
- Source Statistics Canada 2007
*The ‘Forensic’ Math: gleaned by dividing $3,147 by 52, a return of $60.52. At $4.84 per $100, (divide $60.52 by $4.84, a result of 12.5) and this denotes deductions made from a current income of $1,250 weekly (12.5 x 100).
