The Great Ontario minimum wage tax debate of 2018

If you follow any media from Ontario, you will know that there is yet again another minimum wage debate. Doug Ford, leader of the Ontario PCs, has come out with a plan to refund Ontario taxes for minimum wage earners in lieu of increasing minimum wage to $15/hour in 2019. Kathleen Wynne, leader of the Ontario Liberals, will increase minimum wage from the current $14/hour to $15 hour.

This launched a number of twitter critiques and the CBC here.

A key limitation is that we actually don’t have any of the details of the implementation plan for Doug Ford’s plan. There are some pretty concerning complexities with the dribs and drabs we have been provided with, but hard to make clear commentary without the actually plan. So I take his plan at face value, that a minimum wage worker would pay no Ontario tax, but nothing else changes.

The spreadsheet looks at 2017 (Column B) and 2018 (Column C) first which shows the effect of the minimum wage increase from $11.4/$11.6 in 2017 to $14 in 2018. These rest of the columns are various scenarios for the 2019 tax year (Columns D-K), the year in which both proposals come into play. The basic amounts are indexed to inflation and I used 2% for that (hat tip to Election Watcher here as I initially used 1.5%). EI and CPP contributions are calculated using what is confirmed as the formulas for 2019 (again, hat tip to Election Watch here as I was originally unable to confirm the 2019 CPP rate). Federal and provincial tax owing is calculated using current the lowest statutory tax brackets (there has been no announcement yet from either government or party leader that these would change). The GST, WITB, and Trillium tax credits are calculated using best available information and may be off by a bit (which does not change comparisons across categories as they’d be off all by the same fudge factor).

Column D presents for a worker earner $14/hour and working 40 hours a week for 50 weeks (I granted the poor worker two weeks vacation). Column E is the same but for a $15/hour minimum wage. Cell E34 then calculates the net tax position of a $14/hour worker vs $15/hour worker. The $15/hour worker comes out ahead by $712.13.

Column F and G then consider what would happen if the $15/hour worker faced reduced hours so we could see where the break point is. If the worker has their hours reduced by approximately 80 hours a year then they would be better off (net tax position wise) earning $14/hour and having their Ontario tax offset by a credit. If a worker looses their job, well that is a pretty easy scenario.

Column H and I looks at a part time worker, working 20 hours a week for 50 weeks a year. Again, this worker is better off with $15/hour, netting $717.21 a year. But here we see the impact of taxes and benefits that are not re calibrated to minimum wage increases as the worker faces some pretty stiff penalties in having tax benefits reduced.

Finally, Column J and K use the calculations used by Doug Ford and the CBC. In these two columns the poor worker works every week of the year. In this case, the worker nets $740.40 under the $15/hour scheme, assuming no reduction in hours.

If you are interested in knowing the poverty level in Ontario, Row 37 notes the Low Income Measure for Ontario. Row 39 also calculates the inflation that has been reported from the minimum wage increase. Rows 35 and 36 report the average tax rate faced by the worker.

Anyone can use the information in this sheet to play around with any scenario they like.

I present this information, not to say one policy is better than another. They each have their costs and benefits. What I wanted to provide were the facts of the policies and the effects of it on various scenarios. I welcome comments, particularly if you see any errors.


Posted in Money