Will payroll tax hurt the working poor?

As of Nunatsiaq News press deadline this week, Finance Minister David Simailak had yet to introduce changes to the payroll tax formula that would protect Nunavummiut who earn between $45,000 and $75,000 a year.

In his mid-year fiscal update, presented to MLAs Nov. 21, Simailak announced that the GN would increase its payroll tax from one per cent to two per cent.

At the same time, he announced the GN would increase its cost of living tax credit to $900 from $750 – to protect lower income workers.

Later that week, Hunter Tootoo, the MLA for Iqaluit Centre, pointed out that the combined effect of the tax increase and new tax credit means workers earning $45,000 will start paying more tax than they do now.

Right now, workers are protected against the effect of payroll tax until they make a gross annual income that is greater than $75,000 – based on a one per cent tax and a credit of $750.

But with a two per cent tax and a $900 credit, workers will use up the credit after they start making more than $45,000.

“Anyone making over $45,000 is going to get hit with more taxes. They can’t afford it. They’re already the working poor,” Tootoo said.

Simailak responded by saying he will direct his staff to look at ways of changing his announced tax measures, especially an increase in the tax credit from $900 to $1500.

“I know exactly where you are coming from… the Financial Management Board is going to be having a meeting tomorrow morning and we will look at options and see if we can increase that $900 to $1,500,” Simailak said.

A new system would not take effect until after the legislative assembly passes amendments to the Payroll Tax Act.

The payroll tax was introduced by the Government of the Northwest Territories in the mid-1990s to capture revenue from transient workers who normally pay income tax in other provinces or territories.

In his fiscal update, Simailak said the GN estimates that raising the payroll tax from one to two per cent would increase revenues by about $5.3 million.

But if the government goes ahead with an increase to the tax credit, it’s not clear how much of that $5.3 million would be reduced.

As of this past Tuesday, the legislative assembly had yet to deal with the payroll tax issue in committee of the whole.
Right now, the GN is forecasting an $8.7 million deficit for the 2006-07 fiscal year, which ends March 31.