Tax cuts won’t cut it: Low wage workers need a raise

Piggy bank on green backdrop
A month ago, PC Leader Doug Ford floated a trial balloon: he would freeze Ontario’s minimum wage at $14 but take everyone making less than $30,000 a year off of the income tax rolls.

At that time, I checked the math and concluded that a $15 minimum wage would leave more dollars in those workers’ pockets.

This week’s announcement by Ford contains more detail, so it’s only fair to update my analysis.

If elected, Ford would provide a tax credit for minimum wage earners to reduce their income taxes to zero. The press release that accompanied this announcement provides an estimate of taxes payable for someone working full-time, 50 weeks a year, and making $28,000.

The PC estimate is that a full-time minimum wage earner who makes $28,000 a year would save $817 in personal income taxes under this promise. That number only takes into account the basic personal exemption.

To be clear, this policy would freeze the minimum wage at $14 instead of raising it to $15 an hour on January 1, 2019—which is the current government’s schedule. A $15 minimum wage would increase a full-time minimum wage worker’s pre-tax earnings by $2,000.

Under the current rules, the maximum Ontario income tax that you would pay on that $2,000 raise is an additional $101.

So, which option puts more money back in the pocket of the minimum wage worker?

The trade off for minimum wage workers is between taking home at least $1,899 (post tax) more in wages (at $15/hour), or staying at $14/hour and getting a refund of $817.

But it is likely that tax refund would be less than $817. In fact, Canada Revenue Agency (CRA) data shows that the average Ontario taxes paid for people making between $25,000 and $29,999 is about $703. That is because other deductions and credits reduce the payable tax. If a minimum wage worker has other deductions, like child care expenses, it would reduce the benefit of this promise. If they were eligible for a credit for the cost of tuition fees, medical costs, or other such credits, that would also reduce what they owe in taxes.

There is another fundamental problem with this policy. As the system presently stands it is impossible to provide a tax credit based on hourly earnings. There is no way for the CRA to tell the difference between a minimum wage worker working full-time for a month making $2,240 and a high-priced $500/hour lawyer who worked four hours last month. Personal income taxes are based on annual earnings, not hourly earnings.

Bottom line: minimum wage earners would be about $1,100 better off with a $15 minimum wage increase, as opposed to a tax cut. And for some minimum wage earners, the benefit of a $15 an hour minimum wage would be even higher.


Sheila Block is a senior economist with the Canadian Centre for Policy Alternatives’ Ontario office. Follow Sheila on Twitter: @Sheila_M_Block.

5 comments

  1. Although your math might be correct, I think your assumptions may not be. You are comparing the post-tax salary for a full-time minimum wage earner, but that might not always be the case. It seems like Doug Ford is trying to protect jobs. Already with the increase to $14/hour, there have been cases of minimum wage employees losing paid breaks, benefits, reduction in hours and even losing their jobs. Even a reduction of a single hour per week amounts to around $750 per year, did you take that into consideration with your calculations?

  2. This wage freeze also means that the annual cost of living adjustments in October are also being eliminated, so each year it is frozen, wages will once again remain stagnant while the cost of everything else goes up. Not just the minimum wage, but all other wages that use it as a benchmark.

    The other drawback of freezing the minimum wage indefinitely is that sooner or later we will once again have to make a big jump that entrepreneurs will struggle to handle. How large an increase they will have to adjust to depends on how long Ford freezes it for. Hopefully it won’t last the nearly 9 years our last PC government froze it for, or Ontario businesses will be in for a major budget hike.

    Raising it incrementally, after this last $1 jump to get it closer to the benchmark set by the consultation committee in 2014, will mean that businesses will no longer have to deal with sporadic, large hikes, they can incorporate the smaller increases into their annual cost of inflation adjustments.

    Ford’s plan will, in the long run, not just hurt all of Ontario’s working class, but small and large businesses as well.

  3. I noticed that my previous comment was not approved. It did not violate your comment policy, but simply pointed out an important fact that was left out of the article. But I guess you just want to push your own views on others and suppress any other view which goes against yours. I will never trust your site or any of your contributors again.

    1. Hi Andy,
      Your previous comment is approved. The approval just isn’t immediate as all comments have to be reviewed and this process isn’t instantaneous.
      We apologize for the confusion.

      1. Sorry, I see that now. After posting it showed as awaiting approval for a while and then disappeared which made me think it was not approved, very confusing. I take back my previous comment.

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