$15 minimum wage or a tax cut: what are the trade-offs?

Calculator surrounded by bills

In the lead up to the June 7th election in Ontario, the minimum wage continues to be a hot button issue.

Both the provincial Liberals and the NDP have committed to increase the minimum wage from $14 this year to $15 an hour on January 1, 2019.  

But the new leader of the Ontario PC party, Doug Ford, is now saying that he would freeze the minimum wage at $14 an hour and remove everyone earning less than $30,000 a year from the income tax rolls.

Two different scenarios with very different implications for low-wage workers in Ontario.

We looked at the most recent Canada Revenue Agency (CRA) data from 2015 and we found that 4.9 million Ontarians who had a total income of less than $30,000 per year filed taxes.

Two-thirds of those (3.2 million people) paid no income tax, due to a combination of existing tax deductions and tax credits. For those low-income Ontarians, the promise of no taxes offers nothing new.

The 34 per cent of Ontarians with incomes less than $30,000 who paid tax had an average provincial income tax bill of $485 in 2015.

The average Ontario tax rate for those with incomes below $30,000 a year was 0.9 per cent of their total income.  

So is a $485 tax cut better than increasing the minimum wage from $14 to $15 an hour? The simple answer is: no.

Assuming Ontario minimum wage earners work 37.5 hours per week, a one dollar an hour increase in their wages would be worth $1,950 a year, before taxes.

These workers would be further ahead with an increase in wages rather than having their wages frozen and getting a tax cut.

But it doesn’t stop there.

We know that low-income people rely on public services. They can’t send their kids to private school, they rely on subsidized child care in order to work, they are more likely to take public transit.

Freezing the minimum wage and offering a tax cut in its place would not only reduce low-wage workers’ direct income, it would also reduce the amount of revenue that the province has to pay for the public services that they need to rely on: like public education, subsidized child care, and public transit.

This is simply a bad trade off for low-income Ontarians. And it’s an approach that would create a host of other problems.

Eliminating Ontario income tax on the first $30,000 of income for all Ontarians would be prohibitively expensive.

Removing anyone with less than $30,000 of income from the income tax rolls would mean that only half of the population (53 per cent) would be paying income taxes in Ontario.  

Those who are paying income taxes could feel that they are carrying too much of the burden, further eroding our trust in government and public services. As public economist Armine Yalnizyan tweeted: “Can you spell tax revolt?”

This tax reduction could be targeted to low-income workers through a tax credit as Lindsey Tedds pointed out. However, economists also worry about the impact on the incentive to work when you face a sharp increase in the taxes you pay on the next dollar of income. This was widely debated and called the “welfare wall” in the 1990s. As economist Mike Moffatt tweeted: “Anyone making $30,001 would face one hell of a marginal tax bill.”

Tax policy is complex and can have unintended consequences.

That’s why we need to know what the impact of such a proposal would be on low-income Ontarians, the public coffers, tax fairness, and incentives. Canning the minimum wage increase in favour of a tax cut would either be expensive or have a number of negative unintended consequences, and ultimately leaves low-wage workers no farther ahead.

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



  1. Keep going with the numbers, the $2000 income would be taxed by prov. to the tune of $100. Federal tax is 15% so another $300 hit. It’s a wash out. the only way to make it work is to get feds on board with zero tax at this level.

    1. 1950 -(100+300) = 1550

      1550 – 485 = + 1065

      That’s $1065 more value to people 30k and under then the no tax saving them $485 dollars on average. thats $1065 less low income filings get.

      About that far?

  2. Great article, and clearly ends the need to debate which one benefits the millions of struggling Ontario low-income earners.
    As an advocate for poverty reduction and ending homelessness, I’m obviously encouraged by the recent improvements to our social service system, but it never escapes me that the bulk of the money that our governments are ‘giving away’ to improve the lives of our less fortunate citizens is heavily funded by the hardworking (over-taxed) middle-class tax-payers.
    To me, it’s nonsensical to fund social programs on the backs of the middle-class when there is such an incredible disproportionate distribution of wealth in this world.
    Would you be interested in doing the math on a ‘Luxury Tax’ on the 1% of the population that owns 50% of the worlds wealth? (I’m thinking a 0.5% Luxury Tax on ‘Gross Income/Profits’- that way they can’t wiggle through the tax loopholes)

  3. That’s good… Requesting you to take up something for the people who work through agencies… Meaning no permanent job… They should be offered some minimum health dental coverage… Agencies should be responsible to provide some safety umbrella to workers.

  4. Yeah, but you are missing the real point in why Doug Ford wants a different policy.
    He wants it because it will push the cost from business to government, and that means from corporations to regular taxpayers.
    It’s another form of corporate welfare.

  5. Reading through this article it’s difficult to say whether Doug Ford’s plan is good or bad. On the one hand, if you take Sheila Block’s numbers on tax calculations as accurate – which I do then yes this is not a good move. However, there are those in the article citing that 50,000 jobs would be lost from increasing minimum wage from $14 to $15 per hour. This number grows as minimum wage increases.

    This wasn’t taken into account in Sheila’s calculations so her conclusions are not fulsome.

    I was shocked to read that 47% of the people in Ontario make less than $30,000. It seems to me the real solution is to create better paying jobs. Perhaps this should be taken into account by the Green Party (ies) and other “environmentalists” when they block excellent paying jobs from being created.

    Maybe they should do the math at least as Sheila has attempted.

  6. Upper class, middle class, lower class….does not determine if you are a hard worker or not, I work hard, I work nights, weekends, stat holidays…including Christmas day!!!! I moved to a smaller town because housing is cheaper (not much) and quit my job in Markham to take a job much closer to home and at the time just under $12/hr, but this decision was based on a few things, saving money on gas, treacherous driving in the winter and the future promise of $15/hr in Jan 2018, and 2 paid sick days…the last thing people at minimum wage can afford to do is take days off for illness….which benefits nobody, sick workers are not productive, spread germs and takes a toll on the human body when proper health care is not taken. In smaller towns the employers know they can get away with paying only as much as they have to as job opportunities are limited. People make more – they spend more, people are happy at work – they work better, Better pay – less theft….which save business owners money!!!
    Maybe Mr. Ford should try living on $14/hr with no paid sick days for 6 months and then rethink his decision!!!!

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