By Lauren Hollman
The United Conservatives promised to balance the budget without raising taxes.
But did they succeed?
Buried in this budget is a backdoor tax known as bracket creep. Bracket creep happens when governments don’t move tax brackets with inflation, and taxpayers get bumped into a higher tax bracket, even though what we can afford hasn’t changed. Jason Kenney knows better than anyone what bracket creep is: “(Bracket creep is a) hidden and regressive tax grab,” wrote Kenney in a column published in December 1997.
“First, inflation generally causes taxable income to increase at a faster pace than real income. For example, Canadians earning less than about $6,500 are exempt from paying federal taxes because of the existence of the basic personal credit, a tax-free threshold that must be crossed before any federal taxes are owed.”
Kenney even provides examples. “Consider the example of a taxpayer named Joe who earns $6,500 this year from his part-time job. In 1996, Joe would pay no taxes since he has not crossed the tax-free threshold yet.
“But because Joe’s salary increases with inflation, the result would be that Joe moves into a taxpaying bracket. In effect, Joe’s nominal income increases, but his real income stays the same. The result is that Joe’s purchasing power is reduced, and he must hand over $50 to the taxman.”
Over time, inflation erodes the tax-free portion of everyone’s wages, which can harm low-income earners once they approach that threshold purely due to inflation. But it isn’t just low-income earners that have consequences.
“The second effect of bracket creep is the way it pushed middle-income earners into higher and higher tax brackets, as their real incomes remain the same,” Kenney wrote.
Kenney understands that Alberta will be enduring these same consequences if he allows bracket creep to siphon money out of our wallets. “There is a social cost to de-indexation which cannot be ignored.”
Does Kenney recognize bracket creep as a tax hike? Clearly, yes.
Albertans didn’t vote for the United Conservatives to put in a backdoor tax grab. Voters gave elected officials a clear mandate to help our fiscal situation without raising taxes.
But, as these promises are broken, Albertans can expect to be taxed through the backdoor tax known as bracket creep—the same backdoor tax that Kenney condemned not too long ago.